What happened
Shares of the restaurant chain Chipotle Mexican Grill (CMG 2.61%) jumped 21% in April, according to data provided by S&P Global Market Intelligence. The company reported another quarter of excellent earnings and reaffirmed a strong outlook and growth runway.
So what
Chipotle seems almost completely resistant to economic impact. Although that's not exactly true, and it has felt some pressure from changing trends since the pandemic started, profitability has been robust, increasing year over year every quarter since the beginning of 2022.
NYSE: CMG
Key Data Points
Chipotle's business is targeted to a resilient niche of lower-priced but upscale fare, making it accessible to a more affluent base regardless of the economy, while being an affordable luxury for a mass market. As inflation hit and pressured margins, it has been able to raise prices without curbing demand. In the 2023 first quarter, operating margin increased to 15.5% from 9.4% last year.
The popular chain also has a long growth runway. It currently operates more than 3,200 locations, mostly in the U.S. It opened 41 stores in the first quarter and plans to open 255 to 285 in total for the full year. While it has already carved out a strong presence in urban locations, it is now beginning to target smaller cities, where it has less presence.
It is opening in large Canadian cities, many of them for the first time. It also has restaurants in several European cities, and there's a major opportunity internationally. Management has said that it sees the potential for at least 7,000 stores in North America alone.
Now what
The question is always how much higher a successful company can go, and with Chipotle, it looks like a winners-keep-winning scenario. Chipotle stock is seriously outperforming the S&P 500 this year, up 48% versus the index's 7% increase. It has robustly outperformed the market over many years as well, and it has the opportunity to keep that up.
Chipotle stock isn't cheap, trading at 56 times trailing-12-month earnings. But that's actually close to the cheapest it's traded for in the past five years. It gets a premium valuation because its prospects looks so compelling, and because it demonstrates strong profitability. Investors may want to consider buying shares of this top restaurant stock, which should provide years of market-beating gains.
