Chipotle Mexican Grill (CMG 2.41%) reported a blowout quarter in the last three months of 2023. Revenue of $2.5 billion and adjusted earnings per share of $10.36 both beat Wall Street expectations. Within 24 hours following the announcement, shares were up about 8%.

In the past five years, this magnificent restaurant stock has skyrocketed 406%, crushing the S&P 500 by a wide margin. Here's why investors are buying Chipotle hand over fist right now.

Strong business momentum

Compared to 2022's fourth quarter, the company's revenue increased by 15.4%, driven by an 8.4% rise in same-store sales. What's noteworthy is that Chipotle reported an impressive 7.4% jump in transaction counts, indicating that foot traffic at its restaurants remains robust despite ongoing macroeconomic uncertainty.

Investors are also encouraged by the company's proven pricing power. Chipotle has raised its menu prices numerous times over the past couple years, yet consumers still appear to find lots of value in the burritos and bowls.

Net income soared 26% to a total of $283 million. This was boosted by the fact that food, beverage, packaging, and labor costs (as a percentage of revenue) dipped in Q4 on a year-over-year basis.

Looking ahead, executives believe same-store sales will grow in the "mid-single digit range." Given the company's strong momentum, it wouldn't be a shock if this target is exceeded in 2024.

Sizable growth runway

The Tex-Mex fast-casual dining chain opened 271 new restaurants in 2023, bringing the total store count to 3,437. About 88% of these were built with a Chipotlane, which is what the business calls its popular drive-thru format. These locations not only increase accessibility and convenience for hungry customers, but they can also drive up sales, profit margins, and returns on invested capital.

Even though Chipotle's growth over the last few years has been remarkable, the leadership team isn't resting on its laurels. "I am more confident than ever that we have the right people and the right strategy to achieve our long-term growth goals of reaching 7,000 restaurants in North America," CEO Brian Niccol said in the press release.

This implies a doubling of the current footprint. And this goal doesn't even include potential overseas expansion, particularly in Europe and Asia. Even more impressive, Niccol one day hopes each restaurant can produce $4 million in annual sales, up from the current $3 million in unit volume.

Should Chipotle reach its long-term objectives, it would be pulling in $28 billion in yearly revenue. That's 183% higher than 2023's total of $9.9 billion. And with ongoing efforts to implement efficiencies and improve profitability, the bottom line can rise at an even faster clip.

Is the stock expensive right now?

It's not a secret that Chipotle is a high-quality enterprise. Investors know this, and that's why the stock has performed so well. In fact, it has almost doubled since the start of 2023.

But this means the shares aren't cheap, trading at a lofty price-to-earnings ratio of about 63. Some bullish investors might argue that the valuation is warranted given the sizable growth potential, but I don't agree with this perspective. There's just no margin of safety, with expectations so sky-high. It's as if the market already thinks the business has 7,000 stores open.

Chipotle has outperformed the broader market in spectacular fashion, but I think shares are priced to perfection right now. As a result, it's best that investors wait for a better entry point before buying the stock.