Year to date, Chipotle Mexican Grill (NYSE:CMG) stock is up an incredible 88%. A look at this rise may lead many investors to think they've missed out on this opportunity. But one analyst is calling the stock one of his "best ideas."

In 2020, the fast-casual restaurant will see continued momentum from digital sales as it continues to invest in advertising and its loyalty program, the analyst believes. 

Carne Asada Burrito bowl

Chipotle's new Carne Asada Burrito bowl. Image source: Chipotle.

A $970 12-month price target

On Tuesday, Cowen analyst Andrew Charles upgraded Chipotle stock from "market perform" to "outperform," giving the stock a 12-month price target of $970 -- up from a previous target of $800.

Key to the analyst's bull case for the stock is the company's momentum in digital sales. The burrito chain's digital sales jumped 88% year over year in Q3 and accounted for 18.3% of total sales. This strong momentum in digital sales has been a major driver of Chipotle's robust comparable restaurant sales growth recently. Comparable restaurant sales rose 11% year over year in Q3.

Chipotle has executed well when it comes to digital, bringing together a number of initiatives that are serving to online orders. The company recently finished rolling out second make lines (an additional line of menu ingredients dedicated specifically to digital orders) in most of its stores. Furthermore, the consumer goods company now has shelves in its stores where it puts mobile orders so customers can quickly pick up their digital orders without waiting in line. Delivery, too, has been a key driver of digital growth. This is due to a combination of rolling out delivery to 97% of restaurants and improved capabilities in its app and website. 

Furthermore, the company's March rollout of Chipotle Rewards looks poised to morph into a key catalyst in 2020. The company already has 7 million enrolled members, and Chipotle CEO Brian Niccol said in the company's third-quarter earnings call that Chipotle has "only scratched the surface on database marketing."

Niccol continued:

We are encouraged by early signs of transaction increases across all frequency bands and going forward will double down on our ability to leverage this data to incent behaviors. We expect this lever to become a bigger driver over time as we gain more experience gathering customer insight, while continuing to expand our digital platform.

Are shares undervalued?

But has the stock already priced in this opportunity?

A quick glance at Chipotle's price-to-earnings ratio of 74 may convince some investors that shares have already baked in the company's strong growth story. But investors should keep in mind that as Chipotle's comparable restaurant sales increase, its restaurant-level operating expenses will likely grow much slower, leading to outsize earnings growth. This is especially the case now that Chipotle already has its second make lines installed and ready to deliver increased order capacity from its digital initiatives.

Chipotle is already seeing significant operating leverage as sales grow. In Q3, Chipotle's restaurant-level operating margin was 20.8% -- up from 18.7% in the year-ago period. "The improvement was driven primarily by leverage from the comparable restaurant sales increase," management said in its third-quarter earnings release.

This operating leverage should continue to pay off in 2020. With digital sales soaring 88% year over year in Q3, this catalyst still appears to have a lot left in the tank. For Chipotle, 2019 was a year of putting key levers in place to fuel more growth and benefit from further operating leverage. It's no wonder, therefore, that analysts forecast an impressive 29% increase in earnings per share in 2020 and even greater annualized growth in earnings per share in the four years to follow. 

Charles may be on to something. Chipotle shares look attractive, despite their sharp run-up.