It would be nice if stocks only went straight up, as that would make investing a lot easier. However, even growth stocks will fall in price from their highs. These stock dips, though, can often be good opportunities to scoop up a stock at a more attractive price.
Let's look at two growth stocks down 20% or more that investors can consider buying.
1. Chipotle Mexican Grill
NYSE: CMG
Key Data Points
Chipotle Mexican Grill (CMG 0.44%) has been one of the best-performing restaurant stocks over the past five years, up more than 250% over that stretch. However, more recently, the stock has come under some pressure and is down more than 20% from its recent highs. The main reasons behind the sell-off appear to be a combination of some cooling on the stock following its recent stock split, and some fallout from the inconsistent size of its portions.
Chipotle customers went viral earlier this summer by filming employees making their burrito bowls in order to get larger sizes. Meanwhile, Wells Fargo analyst Zachary Fedam and his team helped demonstrate the inconsistency of the size of Chipotle's portions by ordering 75 burrito bowls from eight different restaurants in New York City.
The weight of the orders varied from 13.8 ounces to 26.8 ounces, with a medium weight of 21.4 ounces for in-store orders and 21.6 ounces for digital orders. The biggest factor affecting the portion sizes tended to be restaurant location.
While Chipotle's inconsistent portion sizes could alienate customers and put pressure on sales, this news could also be an opportunity for the company. It shouldn't be difficult to implement more standard sizes across its network of locations to give customers a more consistent experience, which should lead to more satisfied customers and increased sales. The company could also make a nice marketing push in this regard.
Image source: Getty Images.
Overall, this looks like a very fixable issue. In the longer term, Chipotle looks well positioned to continue to benefit from store expansion, innovations to speed up service, menu additions, and gradual price increases.
Trading at a forward price-to-earnings (P/E) ratio of 40 times based on 2025 earnings estimates, the stock's valuation has returned to more reasonable levels. Over the past several years, Chipotle's stock has generally traded at a more than 50 times trailing P/E, so it should have solid upside ahead if it maintains that multiple. That makes the recent pullback a solid buying opportunity in the stock.
CMG PE Ratio (Forward 1y) data by YCharts.
2. Starbucks
NASDAQ: SBUX
Key Data Points
Starbucks (SBUX 0.29%) shares have struggled this year, down more than 20% year to date and off more than 25% from its 52-week highs. The coffee house operator has struggled with traffic in its U.S. stores from more occasional customers, as well as in China, where it faces increased competition.
However, the company has a turnaround plan in place and recently became a large holding at activist fund Elliott Management, founded by billionaire Paul Singer. Elliott has a very strong track record in engaging with management teams and helping turn businesses around.
In the U.S., one of the issues facing Starbucks has been long wait times at peak times that have seen customers cancel digital orders. In order to help address this, the company is turning to technology to help speed up results. This includes rolling out its equipment-driven Siren System, and investing in its Deep Brew artificial intelligence (AI) technology, which aims to create more transparency into wait times and help improve them.
In China, the company is continuing to digitize its stores and add locally relevant menu items. It will also keep adding new locations in smaller cities, where it has been seeing better unit economics.
The pressure in its stock price has led to Starbucks trading at a very attractive valuation. It now trades at a forward P/E ratio under 19 based on fiscal 2025 (ending October) analyst estimates.
SBUX PE Ratio (Forward 1y) data by YCharts.
While Starbucks will not be able to fix its issues overnight, it has a strong brand that has lasting power. At the same time, the stock appears to have been thrown in the bargain bin. Nonetheless, Starbucks has shown in the past that it has been able to successfully turn around its business, and Elliott Management's presence only adds to the likelihood of a successful turnaround.
As such, now looks like a good time to buy the stock.
