Matt Curtis, a Wall Street analyst at DA Davidson, initiated coverage of Chipotle Mexican Grill (NYSE: CMG) stock with a buy rating and a $51 price target, reports TheFly.com today. The stock didn't react as you'd expect to the good news, however. It didn't go up.
Instead, it fell 3.6% through 11:30 a.m. ET Friday.
Why?
Image source: Getty Images.
What Davidson says about Chipotle
Any number of things could have caused Chipotle stock to fall today -- that's the nature of stock investing: often, you're just guessing. If I had to guess, though, I'd say it's probably the lack of detail in Davidson's buy recommendation on Chipotle that is making investors hesitant to take the analyst's advice.
In TheFly's write-up, Curtis is quoted predicting "a significant rebound for Chipotle in FY26 due to multiple sales driving initiatives."
These initiatives are not stated; the write-up merely says that, according to one analyst, Chipotle's same-store sales growth could "potentially return [to its] historical mid-single digit range by year-end." Davidson thinks when this happens, Chipotle's profits will improve and its stock price multiple will expand, giving the stock a one-two shot of catalysts to drive the price higher.
NYSE: CMG
Key Data Points
Is Chipotle stock a buy?
The logic is sound, so far as it goes. Curtis may even be right about the rebound, despite a weak economy and consumers feeling pressure to spend less eating out. But here's the thing:
Chipotle stock costs 32 times trailing earnings right now, and its price-to-free cash flow ratio looks even more expensive. Even assuming Chipotle can dodge all the bad economic news and grow sales despite headwinds, would "mid-single digit" sales growth really justify paying 30-plus times earnings for a fast food stock?
I have my doubts. For me, Chipotle stock remains too expensive to buy.
