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Why Chipotle Mexican Grill Is Soaring Today

By Rich Duprey – Jul 21, 2021 at 11:42AM

Key Points

  • The pandemic changed how consumers interact with restaurants.
  • Chipotle Mexican Grill may have been one of the best at adapting to the change.
  • Its path forward looks clear and it has a strong tailwind at its back.

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The Mexican-food chain seems to have fully recovered from the pandemic.

What happened

Shares of Chipotle Mexican Grill (CMG -0.61%) were running 10% higher in morning trading Wednesday after the Mexican-food restaurant reported second-quarter earnings yesterday that beat analyst expectations on both the top and bottom line.

So what

While Chipotle was going up against easy comparables from the year-ago period when its restaurants had to rely solely upon takeout and delivery for a portion of the quarter, the performance was still notable because it reflects a new dynamic at the eatery.

View of Chipotle Mexican Grill from behind counter

Image source: Chipotle Mexican Grill.

Digital restaurant sales grew 10.5% in the quarter accounting for 48.5% of total sales. Although that's somewhat less than the 60.7% they accounted for last year, it was far more than the 26% they represented in the first quarter of 2020. It indicates consumer behavior may have been changed forever by the COVID-19 pandemic in 2020 and digital-forward chains are the ones that will succeed in the future.

Now what

Chipotle Mexican Grill's stock is not cheap across many metrics you care to look at, going for 110 times trailing earnings and the free cash flow it produces. It also trades at seven times sales and twice its estimated earnings growth rate.

Yet it expects comparable sales to continue growing in the low- to mid-double-digit range, all while it opens 200 new restaurants. It looks like the restaurant stock could be well worth those premiums it's boasting.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

Stocks Mentioned

Chipotle Mexican Grill Stock Quote
Chipotle Mexican Grill
$1,560.99 (-0.61%) $-9.62

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