Shares of fast-casual burrito chain Chipotle (CMG 3.87%) took a hit in after-hours trading on Tuesday, following the company's fourth-quarter earnings report. The report likely has some investors questioning whether the stock's recent rebound from lows below $30 last November is truly justified. After all, Chipotle's important comparable restaurant sales metric, which measures sales at company-owned Chipotle locations open for at least 13 full calendar months, turned negative. In addition, the company provided underwhelming full-year guidance.
With the stock's price-to-earnings ratio at 35 going into Tuesday afternoon's report, investors have good reason to question whether the stock really deserves such a premium valuation after performance like this.
Image source: Getty Images.
A difficult-to-predict consumer continues to plague Chipotle
Chipotle said on Tuesday that its fourth-quarter revenue rose 4.9% year over year -- a significant slowdown from its 7.5% year-over-year growth in Q3.
But the worst datapoint from the update is likely Chipotle's comparable restaurant sales trends. Though management did say that it saw accelerating sales trends throughout its fourth quarter, this didn't stop the company from reporting a 2.5% year-over-year decrease in comparable restaurant sales for the full period.
This decline in Chipotle's key sales metric comes after it turned positive last quarter. Chipotle's third-quarter comparable restaurant sales rose 0.3% year over year, marking a huge improvement from a 4% year-over-year decline in comparable restaurant sales in the second quarter of 2025.
Particularly concerning, Chipotle's fourth-quarter decline in comparable restaurant sales was driven entirely by a 3.2% year-over-year decrease in transactions -- a metric that correlates with restaurant foot traffic. This means fewer people are visiting Chipotle restaurants. Offsetting part of this decline in its comparable restaurant sales metric was growth in average check amount. Chipotle saw a 0.7% year-over-year increase in average customer check size in Q4.
Management explained during Chipotle's fourth-quarter earnings call that there has been an "evolving consumer dynamic," making it difficult to predict sales.
This uncertainty is reflected in the company's guidance. Management guided for full-year comparable restaurant sales to be about flat year over year.
A silver lining
There is, however, one upbeat item worth calling out from Chipotle's fourth-quarter earnings call. Management said it saw sales trends at its stores not only improve throughout the quarter but also into January.
Even more, management said during the company's earnings call that it expects its strategic initiatives to help comparable restaurant sales trends improve throughout the year. Of course, with a flat guide for the full year, this suggests that management likely expects another negative comparable restaurant sales figure for the first quarter of 2026, with positive trends in the second half of the year.
Questioning Chipotle stock's valuation
While it's good to hear that management is seeing improving sales trends in recent months and likely positive comparable restaurant sales by the second half of 2026, the bar is low. The company is up against very easy comparisons next year, since Chipotle's full-year comparable restaurant sales fell 1.7% year over year in 2025.
NYSE: CMG
Key Data Points
Does a company forecasting flat full-year 2026 comparable restaurant sales growth against a 1.7% decline in 2025 really deserve to trade at a price-to-earnings multiple in the 30s?
I don't think so.
Of course, Chipotle could surprise to the upside in 2026, and maybe its comparable restaurant sales trends come in much better than expected. But here's the problem: The stock's premium valuation already arguably prices this in.
Another question is whether the stock even deserves a premium valuation anymore. It may not. Until the company proves it can return to meaningful and consistent comparable restaurant sales growth, shares are starting to look overvalued, in my opinion.
