Despite the coronavirus pandemic and the current economic backdrop of high interest rates and inflation, which you'd assume would derail most businesses, Chipotle Mexican Grill (CMG 2.15%) has continued posting stellar growth on both the top and bottom lines over the past few years. As a result, it's no wonder the stock price has soared a remarkable 69% since the start of 2020, nearly tripling the S&P 500's total return during the same time. 

What has happened in a company's past is certainly important. But investors are understandably more focused on the future. In the same vein, where will this popular Tex-Mex restaurant stock be in three years? 

Resilient business model 

Chipotle investors have been accustomed to a business that seemingly thrives no matter the economic environment. In 2020, the year the pandemic rattled the economy and markets, Chipotle was still able to increase sales 7.1% and open 146 net new restaurants. Leaning heavily on investments in its tech infrastructure, digital sales jumped 174.1% that year compared to 2019 and accounted for 46.2% of overall revenue. 

Fast forward to 2022, a year characterized by surging inflation as well as rising interest rates implemented by the Federal Reserve to pump the brakes on the economy, and Chipotle keeps registering gains. In the most recent quarter (Q3 2022), the business increased revenue and same-store sales 13.7% and 7.6%, respectively, versus the prior-year period. 

Like other companies, Chipotle is having to pay more for key inputs, something that would normally pressure margins. However, in the latest quarter, the operating margin expanded by 2.8 percentage points to 15.1%. And diluted earnings per share jumped 28.1% to $9.20. 

Management expects mid- to high-single-digit growth in fourth-quarter same-store sales. This slowdown (compared to Q4 2021) isn't alarming, though, as Chipotle is facing tough prior-year comparisons as well as a weakening economy. Nonetheless, the company will end 2022 having opened 235 to 250 new restaurant locations. These are all positive trends for shareholders to be optimistic about over the long term. 

Expensive valuation 

Despite operating a resilient business, Chipotle's valuation is a bit on the pricey side of the equation. Even though the stock is down 19% in 2022 (as of this writing), it still trades at a price-to-earnings (P/E) ratio of 49, far more expensive than the trailing-three-year average. What's more, Chipotle carries a higher P/E multiple than other growing restaurant stocks like Domino's Pizza and Starbucks. This is why it's hard to recommend Chipotle stock as a screaming buy right now. 

As a result, Chipotle shareholders are presented with two realities. On the one hand, the underlying business is doing extremely well. In fact, CEO Brian Niccol believes the company can one day have at least 7,000 locations open in North America. This would be more than double the current footprint of 3,090 stores, and it demonstrates a huge opportunity for growth. 

Chipotle's leadership team mentioned on the latest earnings call that accelerating the pace of new store openings is a priority in the years ahead. Given that the average annual sales per Chipotle restaurant have marched higher over time, from $2.1 million in Q3 2019 to $2.7 million in Q3 2022, quickly opening new locations to capture heightened demand is clearly the right strategy. I'm confident this continued rapid expansion in the years ahead will lead to higher levels of sales and profits. 

On the other hand, the market is fully aware of Chipotle's excellence, and that's why the valuation is so high. The business will be bigger and more successful three years from now, but the current P/E ratio has more downside than upside, in my opinion. So for investors who are on the sidelines, it's a good idea to wait for a meaningful pullback before becoming a Chipotle shareholder, no matter how well the fundamentals might look.