Both Chipotle (CMG 2.41%) and McDonald's (MCD -0.91%) stocks are trading near all-time highs as of mid-2023. The businesses brushed aside concerns about slowing consumer spending or weakening profits and instead are reporting some of the strongest customer traffic and earnings results that investors have seen in years.
Wall Street is aware of these positive trends, though, as reflected in the fact that the stocks are trading at elevated valuations right now. With that caution signal in mind, let's take a look at which of these two restaurant chains would be the better long-term investment from here.
Latest results favor McDonald's
McDonald's owns the top position when it comes to recent growth trends. Sales in the first quarter were up a blazing 13% year over year thanks to a balance between rising customer traffic and increased average spending. Executives credit a return to basics like customer service for helping achieve these market-leading results. "We have refocused on operational excellence," CEO Chris Kempczinski said in a late-April press release.
Chipotle's comparable-store sales growth was slightly weaker at 11%, but overall revenue jumped 17% year over year with help from an expanding base of stores. The chain made progress at reducing order times for things like delivery and to-go orders, which consumers are increasingly choosing over sit-down options.
Margin battle makes a difference
Their profit margins aren't directly comparable because McDonald's is heavily franchised while Chipotle is not. But both companies are reporting strong and rising profitability.
For Mickey D's, operating income is now well above 40% of sales thanks to factors like accelerating growth, slowing cost inflation, and higher menu prices. Likewise, Chipotle last reported a 5-percentage-point increase in its base profitability level as the average restaurant turned 26% of sales into operating income.
MCD Operating Margin (TTM) data by YCharts
That boost was supported by heavy investments in areas like food quality and employee training. "We will continue to develop exceptional people and prepare exceptional food," CEO Brian Niccol told investors.
Looking ahead for McDonald's and Chipotle
The two companies will update investors on their latest operating trends in late July. The average Wall Street analyst is projecting McDonald's revenue to rise by about 9% year over year in Q2, while Chipotle is expected to post a 14% increase with added help from a growing store base.
In the meantime, investors aren't getting obvious deals with either stock. Chipotle stock is valued at nearly 7 times sales today while McDonald's is weighing in at over 9 times sales. These valuations are close to all-time highs for these stocks and could shrink if economic growth rates slow in the coming months.
Yet Chipotle seems like a slightly better option right now. Beyond its cheaper valuation, the business has a good shot at expanding margins over the next few quarters as more of its sales tilt toward drive-thru and delivery. The company is reaching outside of expensive metropolitan areas, too, giving it another avenue for both growth and higher profits.
Patient investors are likely to see excellent returns from holding either of these high-performing businesses. Yet keep a closer eye on Chipotle's attractive stock right now.
