Over the last six months, Chipotle’s shares have sunk to $42.20, producing a disappointing 13.5% loss - a stark contrast to the S&P 500’s 23.2% gain. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Following the pullback, is this a buying opportunity for CMG? Find out in our full research report, it’s free for active Edge members.
Why Are We Positive On CMG?
Born from a desire to offer quick meals with fresh, flavorful ingredients, Chipotle (NYSE: CMG) is a fast-food chain known for its healthy, Mexican-inspired cuisine and customizable dishes.
1. New Restaurants Opening at Breakneck Speed
A restaurant chain’s total number of dining locations influences how much it can sell and how quickly revenue can grow.
Chipotle operated 3,839 locations in the latest quarter. It has opened new restaurants at a rapid clip over the last two years, averaging 8.2% annual growth, much faster than the broader restaurant sector.
When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.
2. Surging Same-Store Sales Show Increasing Demand
Same-store sales show the change in sales at restaurants open for at least a year. This is a key performance indicator because it measures organic growth.
Chipotle has been one of the most successful restaurant chains over the last two years thanks to skyrocketing demand within its existing dining locations. On average, the company has posted exceptional year-on-year same-store sales growth of 4.8%.
3. Economies of Scale Give It Negotiating Leverage with Suppliers
With $11.58 billion in revenue over the past 12 months, Chipotle is one of the most widely recognized restaurant chains and benefits from customer loyalty, a luxury many don’t have. Its scale also gives it negotiating leverage with suppliers, enabling it to source its ingredients at a lower cost.
Final Judgment
These are just a few reasons why we think Chipotle is a great business. With the recent decline, the stock trades at 32.7× forward P/E (or $42.20 per share). Is now the right time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.
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