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Is Chipotle Stock a Buy, Sell or Hold at a P/S Multiple of 6.49X?
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Chipotle Mexican Grill, Inc. (CMG - Free Report) has become a standout performer in the fast-casual dining sector, with its shares trading at a premium compared to its peers. The company boasts a forward 12-month Price-to-Sales ratio of 6.49X, significantly higher than the Zacks Retail-Restaurant industry’s average of 4.01X and the broader Retail-Wholesale sector’s 1.44X.
CMG’s shares have surged 63.2% in the past year compared with the industry’s appreciation of 20.9% and the S&P 500’s 38.5% increase. CMG has outpaced other industry players like McDonald's Corporation (MCD - Free Report) , up 24.3%, Domino's Pizza, Inc. (DPZ - Free Report) , up 23.1%, and Restaurant Brands International Inc. (QSR - Free Report) , up 7.5%, in the past year.
CMG Price Performance
Image Source: Zacks Investment Research
Technical indicators suggest continued strong performance for CMG. As of Friday, Chipotle stock was trading at $59.39, above its 50-day moving average of $56.12 and its 200-day moving average of $56.5. The technical strength underscores positive market sentiment and confidence in CMG's financial health and prospects.
CMG Stock Trades Above 50 and 200-Day Moving Average
Image Source: Zacks Investment Research
Factors Acting in Favor of Chipotle
Operational Excellence and Throughput Improvements: Chipotle's focus on throughput, or the speed at which restaurants serve customers, has been instrumental in meeting the growing demand. With an 8% increase in transaction comps (during the second quarter of 2024), the company’s training and deployment strategies have ensured faster service and a better guest experience. This operational improvement strengthens the value proposition for both customers and investors alike.
Menu Innovation: Menu innovation, such as the reintroduction of Chicken Al Pastor, has been a significant driver of customer engagement. Chipotle's ability to roll out limited-time offers that resonate with customers has paved a path for increased transactions and spending. The return of Smoked Brisket (for a limited time) at restaurants in the United States and Canada demonstrates the company’s strategy to keep the menu exciting and relevant.
Addressing Customer Concerns: Chipotle has taken proactive steps to address customer concerns about portion sizes. By focusing on consistency and training across its restaurants, Chipotle has reinforced its commitment to offering generous portions. This effort has already yielded positive results, supported by improved consumer scores.
Expansion and Strategic Growth: Chipotle’s expansion strategy remains robust, with plans to open 285 to 315 new restaurants in 2024. The company has also made strides in international markets, including strong performance in its first Kuwait location, with more openings planned in Dubai. These efforts to increase access and convenience, both domestically and internationally, provide a path for future growth.
Technological Advancements and Innovation: Chipotle continues to invest in technology to enhance operational efficiency. Initiatives such as dual-sided grills, which reduce cooking time while maintaining food quality, are being rolled out to high-volume restaurants.
Chipotle Mexican Grill has announced the testing of two cobotic prototypes, Autocado and the Augmented Makeline, in select California locations. Autocado, developed with Vebu, automates avocado processing to enhance guacamole preparation, while the Augmented Makeline, in collaboration with Hyphen, uses automated technology to prepare bowls and salads, improving efficiency and digital order accuracy. These innovations are part of Chipotle’s broader strategy to optimize operations and elevate customer experiences. Through its $100 million Cultivate Next venture fund, Chipotle is also making minority investments in AI supply chain platform Lumachain and fast-casual restaurant Brassica, supporting its mission to expand and enhance sustainable food production.
Financial Metrics Set CMG Apart
Chipotle’s return on invested capital (ROIC) has outperformed the industry average in the trailing 12 months. ROIC of CMG was 19.68% compared with the industry average of 10.83%.
The company’s impressive ROIC is a testament to its effective capital allocation, strong operational efficiency, and ability to generate high returns from its investments. Chipotle’s strategic focus on expanding its digital and in-store operations, enhancing customer experiences through technological innovations like Autocado and the Augmented Makeline, and its disciplined approach to new restaurant openings have contributed to its superior performance. Additionally, its investments in sustainable practices and innovative concepts through the Cultivate Next venture fund further strengthen its competitive advantage, positioning the company for continued growth and profitability.
Image Source: Zacks Investment Research
CMG’s trailing 12-month return on equity is 44%, ahead of the industry average of negative 256%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders’ funds in its operations to generate income.
Image Source: Zacks Investment Research
CMG’s Rising Estimates
The Zacks Consensus Estimate for the company’s 2024 earnings per share (EPS) increased from $1.08 to $1.09 in the past 30 days. During the same period, the consensus mark for 2025 EPS moved up from $1.28 to $1.29. The positive revision trend reflects confidence in Chipotle’s ability to continue delivering strong financial performance.
Image Source: Zacks Investment Research
Conclusion: Time to Buy Chipotle Stock?
Chipotle presents a compelling investment opportunity, driven by strong operational efficiency, innovative menu offerings, and strategic growth initiatives. The company’s ability to consistently enhance customer experience through technology, such as the introduction of cobotic prototypes like Autocado and the Augmented Makeline, further boosts its operational edge. With robust transaction growth, expanding restaurant footprint, and a focus on international markets, Chipotle is well-positioned to capitalize on rising consumer demand. Additionally, its impressive ROIC and rising earnings estimates underscore its potential for long-term shareholder value. We believe that this Zacks Rank #2 (Buy) stock is an ideal candidate for investors' portfolio addition.
Image: Bigstock
Is Chipotle Stock a Buy, Sell or Hold at a P/S Multiple of 6.49X?
Chipotle Mexican Grill, Inc. (CMG - Free Report) has become a standout performer in the fast-casual dining sector, with its shares trading at a premium compared to its peers. The company boasts a forward 12-month Price-to-Sales ratio of 6.49X, significantly higher than the Zacks Retail-Restaurant industry’s average of 4.01X and the broader Retail-Wholesale sector’s 1.44X.
CMG’s shares have surged 63.2% in the past year compared with the industry’s appreciation of 20.9% and the S&P 500’s 38.5% increase. CMG has outpaced other industry players like McDonald's Corporation (MCD - Free Report) , up 24.3%, Domino's Pizza, Inc. (DPZ - Free Report) , up 23.1%, and Restaurant Brands International Inc. (QSR - Free Report) , up 7.5%, in the past year.
CMG Price Performance
Image Source: Zacks Investment Research
Technical indicators suggest continued strong performance for CMG. As of Friday, Chipotle stock was trading at $59.39, above its 50-day moving average of $56.12 and its 200-day moving average of $56.5. The technical strength underscores positive market sentiment and confidence in CMG's financial health and prospects.
CMG Stock Trades Above 50 and 200-Day Moving Average
Image Source: Zacks Investment Research
Factors Acting in Favor of Chipotle
Operational Excellence and Throughput Improvements: Chipotle's focus on throughput, or the speed at which restaurants serve customers, has been instrumental in meeting the growing demand. With an 8% increase in transaction comps (during the second quarter of 2024), the company’s training and deployment strategies have ensured faster service and a better guest experience. This operational improvement strengthens the value proposition for both customers and investors alike.
Menu Innovation: Menu innovation, such as the reintroduction of Chicken Al Pastor, has been a significant driver of customer engagement. Chipotle's ability to roll out limited-time offers that resonate with customers has paved a path for increased transactions and spending. The return of Smoked Brisket (for a limited time) at restaurants in the United States and Canada demonstrates the company’s strategy to keep the menu exciting and relevant.
Addressing Customer Concerns: Chipotle has taken proactive steps to address customer concerns about portion sizes. By focusing on consistency and training across its restaurants, Chipotle has reinforced its commitment to offering generous portions. This effort has already yielded positive results, supported by improved consumer scores.
Expansion and Strategic Growth: Chipotle’s expansion strategy remains robust, with plans to open 285 to 315 new restaurants in 2024. The company has also made strides in international markets, including strong performance in its first Kuwait location, with more openings planned in Dubai. These efforts to increase access and convenience, both domestically and internationally, provide a path for future growth.
Technological Advancements and Innovation: Chipotle continues to invest in technology to enhance operational efficiency. Initiatives such as dual-sided grills, which reduce cooking time while maintaining food quality, are being rolled out to high-volume restaurants.
Chipotle Mexican Grill has announced the testing of two cobotic prototypes, Autocado and the Augmented Makeline, in select California locations. Autocado, developed with Vebu, automates avocado processing to enhance guacamole preparation, while the Augmented Makeline, in collaboration with Hyphen, uses automated technology to prepare bowls and salads, improving efficiency and digital order accuracy. These innovations are part of Chipotle’s broader strategy to optimize operations and elevate customer experiences. Through its $100 million Cultivate Next venture fund, Chipotle is also making minority investments in AI supply chain platform Lumachain and fast-casual restaurant Brassica, supporting its mission to expand and enhance sustainable food production.
Financial Metrics Set CMG Apart
Chipotle’s return on invested capital (ROIC) has outperformed the industry average in the trailing 12 months. ROIC of CMG was 19.68% compared with the industry average of 10.83%.
The company’s impressive ROIC is a testament to its effective capital allocation, strong operational efficiency, and ability to generate high returns from its investments. Chipotle’s strategic focus on expanding its digital and in-store operations, enhancing customer experiences through technological innovations like Autocado and the Augmented Makeline, and its disciplined approach to new restaurant openings have contributed to its superior performance. Additionally, its investments in sustainable practices and innovative concepts through the Cultivate Next venture fund further strengthen its competitive advantage, positioning the company for continued growth and profitability.
Image Source: Zacks Investment Research
CMG’s trailing 12-month return on equity is 44%, ahead of the industry average of negative 256%. Return on equity, a profitability measure, reflects how effectively a company is utilizing its shareholders’ funds in its operations to generate income.
Image Source: Zacks Investment Research
CMG’s Rising Estimates
The Zacks Consensus Estimate for the company’s 2024 earnings per share (EPS) increased from $1.08 to $1.09 in the past 30 days. During the same period, the consensus mark for 2025 EPS moved up from $1.28 to $1.29. The positive revision trend reflects confidence in Chipotle’s ability to continue delivering strong financial performance.
Image Source: Zacks Investment Research
Conclusion: Time to Buy Chipotle Stock?
Chipotle presents a compelling investment opportunity, driven by strong operational efficiency, innovative menu offerings, and strategic growth initiatives. The company’s ability to consistently enhance customer experience through technology, such as the introduction of cobotic prototypes like Autocado and the Augmented Makeline, further boosts its operational edge. With robust transaction growth, expanding restaurant footprint, and a focus on international markets, Chipotle is well-positioned to capitalize on rising consumer demand. Additionally, its impressive ROIC and rising earnings estimates underscore its potential for long-term shareholder value. We believe that this Zacks Rank #2 (Buy) stock is an ideal candidate for investors' portfolio addition.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.