The stock of Chipotle Mexican Grill (CMG -0.06%) closed at its all-time high of $68.55 on June 18, 2024. At the time, investors were dazzled by the fast-casual restaurant chain's robust growth in comparable-store sales (comps), resilient margins, and clear expansion plans.
But since hitting that peak, share prices have declined about 15%. Its stock initially sank last August after Starbucks poached its star CEO. It recovered through the end of the year, but it pulled back again as investors fretted over sticky inflation and slower interest rate cuts. However, I believe Chipotle is still worth buying right now for five simple reasons.
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1. Its comparable-store sales are rising
Chipotle's comps were flat in 2015 and declined in 2016 and 2017. That slowdown was caused by intense competition, a weak mobile strategy, and several E. coli outbreaks at select restaurants that tarnished its brand.
Yet its comps rose again in 2018 and grew every year through 2023. It expects to maintain that streak with increases in the mid to high single digits in 2024 -- even as inflation throttles the growth of many of its industry peers. We won't have to wait long to find out: The company reports its fourth-quarter earnings after market close on Tuesday, Feb. 4.
2. Chipotle is in good hands without its star CEO
Most of that recovery can be attributed to CEO Brian Niccol, who took over in 2018 and reversed the company's decline by upgrading its mobile app, adding new grab-and-go options, expanding its rewards program, collecting more customer data, and installing its drive-thru Chipotlanes at more locations to streamline orders.
Niccol also halted its heavy discounts and promotions and poured that cash into fresh marketing campaigns to win back the customers it had lost during its food poisoning crisis.
That's why investors weren't pleased when he abruptly left to lead Starbucks instead. But his successor, Scott Boatwright, had already served as Chipotle's chief operating officer since 2017 and executed those ambitious turnaround plans. Therefore, Boatwright will likely maintain those strategies to drive growth for the foreseeable future.
3. Chipotle is opening new locations
When faced with slowing comps growth, some restaurants try to open new stores to boost reported revenue. But that strategy is unsustainable if those newly opened stores fail to grow their sales year over year after they mature.
Chipotle is one of the few restaurant chains that keeps growing its comps as it opens new stores. It ended the third quarter of 2024 with 3,615 company-owned restaurants, up from 3,437 at the end of 2023. It planned to have 3,722 to 3,752 locations by the end of 2024 and to open 315 to 345 new locations in 2025.
4. Its margins are expanding in a tough market
As inflation heated up, many restaurants saw their operating margins crumble under the pressure of higher commodity and labor costs. However, Chipotle's restaurant-level operating margin actually expanded from 18.7% in 2018 to 26.2% in 2023 and jumped year over year to 27.3% in the first nine months of 2024.
The company repeatedly raised prices to counter inflation and protect its margins. Its success indicates it still has a lot more pricing power than its industry peers in the crowded fast-casual market.
5. Chipotle stock is reasonably valued relative to the company's growth potential
From 2023 to 2026, analysts expect Chipotle's revenue and earnings per share (EPS) to have a compound annual growth rate (CAGR) of 14% and 21%, respectively. That makes it one of the world's fastest-growing restaurant chains, and it still has plenty of room to rise as it opens new stores across Europe and the Middle East. It also aims to nearly double its North American store count to about 7,000 within a few years.
So while the stock might not initially seem cheap at 44 times its forward adjusted earnings, it looks reasonably valued relative to its long-term potential. It's not easy to find a well-established restaurant chain with reliable comps growth, consistent store openings, expanding margins, and a strong brand -- but Chipotle seems to check all of those boxes.
