Over the past six months, Chipotle’s stock price fell to $30.90. Shareholders have lost 7.8% of their capital, which is disappointing considering the S&P 500 has climbed by 16.8%. This might have investors contemplating their next move.
Following the drawdown, is now the time to buy CMG? Find out in our full research report, it’s free.
Why Does CMG Stock Spark Debate?
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.
Two Things to Like:
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 sported 4,186 locations in the latest quarter. Over the last two years, it has opened new restaurants at a rapid clip by averaging 8.6% annual growth, among the fastest in the 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. Economies of Scale Give It Negotiating Leverage with Suppliers
With $12.42 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.
One Reason to Be Careful:
Flat Same-Store Sales Indicate Weak Demand
Same-store sales is an industry measure of whether revenue is growing at existing restaurants, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).
Chipotle’s demand within its existing dining locations has barely increased over the last two years as its same-store sales were flat.
Final Judgment
Chipotle’s positive characteristics outweigh the negatives. After the recent drawdown, the stock trades at 25.5× forward P/E (or $30.90 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.
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