With its innovation in the restaurant industry, creating and scaling the fast-casual concept, Chipotle Mexican Grill's (CMG 2.12%) success can't be overlooked. Its growth has been spectacular, despite macro headwinds causing weakness this year. And shares have more than doubled in the past five years, a great outcome for investors.
As of July 24, this top restaurant stock trades 34% below its peak, which was established in June 2024. You might bet thinking about buying the dip, but before you press the "buy" button, here are three things you must about know Chipotle.
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1. Leading the restaurant industry
The restaurant industry might be the most competitive market there is. Consumers have an unlimited number of options to choose from, with no switching costs. Anyone with some capital and an idea could open a restaurant, minimizing the barriers to entry. Businesses must constantly cater to changing tastes and preferences, while dealing with inflationary pressures for labor and ingredients.
This makes it very difficult for a company to develop durable competitive advantages. However, Chipotle has done just that. For starters, its brand has become highly regarded among customers, especially since the business bounced back successfully from the health scare about a decade ago. Chipotle has 40 million rewards members, showcasing customer loyalty, and it's the third most popular restaurant chain reported in Piper Sandler's latest Taking Stock With Teens Survey.
That brand strength has supported pricing power. To offset higher costs, Chipotle has successfully raised menu prices in recent years.
What's more, at the current scale of $3.1 billion in Q2 revenue and 3,839 stores, Chipotle likely benefits from a cost advantage. Compared to smaller restaurant chains, this company can better leverage marketing and tech expenses, for instance, while having access to favorable real estate.
2. Impressive growth trajectory
Chipotle has had a challenging year thus far, as it reported 0.4% and 4% drops in same-store sales in Q1 and Q2, respectively. Foot traffic has been declining, as consumers seek out more value and are more discerning with their spending. The leadership team now expects same-store sales to be flat for the full year, downgrading its outlook.
But Chipotle is still in an enviable position. And executives remain confident in the company's strategy, viewing the current situation as a temporary macro speed bump.
The growth story is still intact. Chipotle opened 61 new locations in the last three months, with the drive-through Chipotlane being built in more of these stores to bolster accessibility and convenience. That supports digital sales, which represented 35.5% of total revenue in Q2.
Investors should be optimistic. "We are also confident in our ability to grow new restaurant openings between 8% and 10% and to reach 7,000 restaurants longer term," CEO Scott Boatwright said on the Q2 2025 earnings call.
3. Better deal for investors
Chipotle's stock usually hasn't traded at a compelling valuation. However, this is no longer the case. Because shares are significantly off their peak, due to softer same-store sales trends, investors are being presented with what I believe is a buying opportunity.
The stock can be purchased today at a price-to-earnings ratio of 40. This is the cheapest valuation in the past five years. On the surface, that might look expensive. But considering Chipotle's brand value, cost advantage, and growth potential, it looks reasonable. And think about the fact that the company's operating income soared 307% between 2019 and 2024.
That's not to say that it will be smooth sailing. The next few quarters could remain challenging, but it's easy to be bullish on Chipotle over the long term.
