What happened
Shares of Chipotle Mexican Grill (CMG 0.17%) stock rose 18.7% in January, according to data from S&P Global Market Intelligence. The company didn't report any news, but it benefited from renewed investor confidence in companies that are posting strong performance.
So what
Chipotle has a working formula that breeds strong consumer loyalty and engagement. It's at that sweet spot that meets an affluent, resilient customer market, shoppers who still have some disposable money to spend at times like these, without being so high-luxury that shoppers pull back in a tight economy.
It has posted revenue and comparable sales (comps) increases consistently, straight through the pandemic and inflation. Sales increased 13.7% in the 2022 third quarter more than last year, fueled by a 7.6% comps increase. Profits have increased as well, rising 28% year over year in the third quarter. It successfully raised prices to match rising costs, taking off some of the inflationary pressure it has been experiencing like everyone else.
The company has a broad omnichannel strategy with a focus on digital and delivery. Digital sales accounted for 37% of the total in the third quarter, but in-store sales increased at a faster rate, growing 22% higher than last year. This varied mix is key to its continued growth.
CEO Brian Niccol said he sees the opportunity for 7,000 restaurants, or more than double the current 3,100. With openings around 250 per year, that gives it a long growth runway just to achieve what would now be called saturation, and that's likely to change in the coming years.
Chipotle announces fourth-quarter results on Tuesday.
Now what
Chipotle stock lost 21% in 2022, or just a drop more than the S&P 500. That's pretty pessimistic considering its incredible performance, so it seemed only a matter of time until it would begin to bounce back. Now that it's up in 2023, Chipotle stock is up 14% over the past year. At this price, shares trade at 59 times trailing 12-month earnings. That would seem extremely expensive, even for such a great stock, but it's actually well below Chipotle's average over the past five years.
CMG PE Ratio data by YCharts
This might not be called an undervalued stock, but I don't think investors need to worry about hits being called overvalued at this price. There's just so much more value to unlock with this stock, and it's a long-term winner for most portfolios.
