Chipotle Mexican Grill (CMG +0.63%) is a pioneer in the restaurant industry, having introduced the fast-casual concept to the masses. The company's success has inspired entrepreneurs to launch similar setups focusing on different cuisines.
Despite being a trailblazer and holding a strong position in the market, this once-booming restaurant stock is taking it on the chin. If you're looking to buy the dip on Chipotle, here's what you need to know as we look to 2026.
Image source: Getty Images.
2025 was a difficult year
In the five years leading up to their peak in June 2024, Chipotle shares had surged 368%. So it's alarming when you see the stock drastically underperforming the S&P 500 in 2025, with shares tanking 38% in the year (as of Dec. 17). Clearly, the business is dealing with some issues that are making it lose the market's confidence.
In February, Chipotle was forecasting same-store sales (SSS) growth in the low to mid-single-digit range for 2025. During the latest quarterly update on Oct. 29, however, executives updated their guidance, now expecting SSS to decline in the low single digits this year. That's a notable downgrade that has come from weaker financial performance in recent quarters.
The most alarming trend is softer traffic. Transaction counts decreased 0.8% in the third quarter (ended Sept. 30). Younger and lower-income people are ordering Chipotle less often.
Chipotle has also tried to address the backlash it faced from customers who believed the portions were too small. That doesn't support the brand's perception. Nonetheless, CEO Scott Boatwright believes the company still provides a compelling value proposition relative to fast-casual competitors.
NYSE: CMG
Key Data Points
The economic backdrop matters
The U.S. isn't officially in a recession, but consumers are definitely pulling back, as they deal with what seems like higher costs across the board. It makes sense that they'd choose to eat out less. But if the Federal Reserve's accommodative monetary policy shift can drive economic confidence, spending could get a boost, which would benefit Chipotle.
Regardless of what macroeconomic developments occur, the business must continue to focus on areas that got it to the top of the restaurant industry. Things like menu innovation, digital capabilities, and food quality are still priorities for management.
The company's growth trajectory isn't changing. Chipotle is planning to open 350 to 370 net new locations in 2026. This should lift overall revenue, although margins might remain under pressure due to inflation and muted SSS.
Buying the stock seems risky, particularly when the business isn't operating at full strength. But Chipotle stock trades at a price-to-earnings ratio of 31.4, the cheapest valuation in five years. Patient investors should take a closer look at the Tex-Mex leader while it's on the dip.
