Chipotle Mexican Grill (CMG 2.91%) blasted to an all-time high last summer in anticipation of its 50-for-1 stock split. But it's been a mixed bowl since. CEO Brian Niccol announced he would take a similar post at Starbucks (NASDAQ: SBUX) last August. And Chipotle's results haven't been very good since.
With the stock down 31.2% year to date, here's why the sell-off in this growth stock could be a buying opportunity for patient investors.
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Growth has ground to a halt
Chipotle's stock is down 21.5% since the company reported second-quarter 2025 earnings on July 23. There was a lot not to like in the quarter, including just a 3% increase in sales -- because of new store openings -- and a 4% decrease in same-store sales (comps). Operating margins also fell to 18.2% from 19.7% a year ago. Guidance was bleak, forecasting flat full-year comps.
These results are nothing like what investors have been used to from the burrito behemoth. Chipotle's stock price, revenue, margins, and earnings soared over the last five years, showcasing management's ability to navigate the pandemic, supply chain disruptions, and inflation. So investors may be wondering what makes the current climate so much worse.
The answer is likely a combination of pressures on consumers to pull back on restaurant spending, as well as fatigue with price increases. A three-legged stool of sales volume, store openings, and price increases has fueled Chipotle's long-term growth.
When everything is working in concert, the results can be amazing. But when consumers resist price increases, and comps suffer -- as we just saw in the latest quarter -- it can throw a wrench into the works.
Blending customization and convenience
To counteract these pressures, Chipotle is leaning into its digital sales and its rewards program. Online sales were 35.5% of total food and beverage revenue in the recent quarter. And 80% of the 315 to 345 stores Chipotle plans to open in 2025 will have a mobile-order pickup lane, or Chipotlane.
The company offers more customization and higher quality compared to most fast-food restaurants, but that can also lead to longer wait times, overwhelmed staff, and supply chain challenges. Mobile ordering reduces some of this complexity by eliminating the crucial step of a customer relaying an order to the Chipotle staff and the payment process. That way, the store just has to put together the order and give it to the customer, which can save staff and customers time. A rewards program further incentivizes frequent visits through points and special promotions.
It all sounds great on paper. But as Starbucks has found, leaning heavily on mobile orders can backfire and lead to especially complex orders and impatient customers who order in person and then have to wait for the mobile orders to be processed before they get their order fulfilled.
Starbucks' solution is a 30% reduction in its menu items by the end of fiscal year 2025, as well as the introduction of new items to appeal to a majority of customers' interests rather than niche orders.
As Chipotle pushes digital orders, investors should watch to make sure the influx doesn't backfire on staff or sales volumes. But for now, the chain's main focus is on boosting sales volume. It just released its Honey Chicken, which was featured in one out of every four orders in the recent quarter. And the company debuted its first dip in five years with Adobe Ranch.
All told, Chipotle is playing the long game by focusing on building a quality menu that will appeal to a wide range of customers and leverage convenience through mobile order and pickup. These initiatives will be especially important over the medium term, as their success could alleviate the need to raise prices.
The stock is on the investor value menu
Investors who believe in this long-term strategy are getting a compelling opportunity to buy shares on sale. Chipotle has a price-to-earnings ratio (P/E) of 37 compared to a five-year median P/E of 56.9. The stock has historically fetched an ultra-premium valuation for a restaurant because of the chain's growth and brand power. But the valuation compression shows investor frustration with the company's recent results.
Chipotle continues to repurchase a ton of stock, including $435.9 million in the recent quarter. It doesn't pay a dividend, but buybacks are an essential way it returns value to shareholders. By reducing the share count, it artificially increased earnings per share -- making the stock a better value. With $838.8 million remaining in share repurchase authorizations by the board of directors, expect the company to continue buybacks in the coming quarters.
Time to buy the dip on Chipotle stock
Chipotle stock is the cheapest it has been in five years, providing an intriguing opportunity for investors who are willing to look past the near-term slowdown.
Investing in phenomenal businesses when they are out of favor for what appear to be temporary reasons can be an excellent opportunity to build long-term wealth. One of the greatest advantages individual investors have over institutions is that they don't have the pressure of performing relative to their peers or clients.
So an individual can endure volatility and let a story play out. Or in the case of Chipotle, buy the dip without needing the stock to magically recover overnight.
