What happened
Shares of Chipotle Mexican Grill (CMG 2.41%) were down 10.3% through Thursday's market close, according to data provided by S&P Global Market Intelligence. The company reported mixed financial figures earlier this week. While earnings beat analyts' expectations, revenue fell just short of the consensus estimate.
So what
From a long-term investor's perspective, the business is still performing well. Revenue grew 13.6% year over year, supported by a solid increase of 7.4% in comparable-restaurant sales (comps). This is consistent with the company's previous 10-year annualized revenue growth of 12%.
Most importantly, Chipotle continues to have top-notch margins. Its restaurant-level operating margin improved 2.3 percentage points, which helped fuel a robust 33% year-over-year increase in earnings per share.
The bottom-line growth is what presents a buying opportunity after the recent dip. Chipotle's operating profit margin has been trending higher over the last few years, and it's benefiting right now from lower avocado prices, but management mostly credited sales leverage in the earnings report. Earnings would have grown even faster if not for inflationary food costs that are still in the supply chain.
CMG operating margin (TTM) data by YCharts. TTM = trailing 12 months.
Now what
Management is executing its growth strategy, including setting the stage for international expansion. This, along with improving margins, could justify Wall Street's consensus expectation for earnings to grow nearly 25% per year over the next five years.
The stock is now trading at a cheaper valuation than it did earlier this year, when better-than-expected earnings caused the stock to jump following the first-quarter earnings report.
However, the key difference this time around was management's lower sales outlook for the full year. It now expects full-year comps to increase by the low to mid single digits. This is a downward revision from the mid- to high-single-digit range offered in the previous report.
Chipotle still looks like a solid investment, considering its international growth goals and improving margins.
