Is Chipotle’s Stock Soon to Surpass All-time Highs?
Burrito costs are up and so is Chipotle’s stock (CMG). CMG is on its way to the high price of $2000. The stock is currently sitting at $1,800 (as of April 21) and is increasing each day. Chipotle’s earnings jumped 49% last quarter, which was its third consecutive quarter of high-profit growth. The stock has been ranked high in many different areas, some including a Relative Strength Rating of 83 (meaning CMG has beat 83% of all stocks regarding price performance), 98 Composite Rating (of 99), and a A- Accumulation/Distribution Rating (on a A+ to E scale). Outside of rankings, CMG holds the number one spot in the Retail-Restaurants industry group– with Texas Roadhouse (TXRH) taking second and Wingstop (WING) being third.
But the current price of CMG isn’t the astonishing all-time high. Shockingly, in 2021 during the COVID-19 ‘rebound’ the stock hit a high of $1,950.. In fact, CMG has been quite resilient to the many economic changes it has faced, something that clearly goes hand in hand with its success. When the S&P 500 fell about 18% in 2022, Chipotle fell just over 10%, outperforming the greater market. While having to deal with inflation and lower consumer spending, the company still produced great revenue. By implementing small changes such as micro price increases, Chipotle saw an operating margin of 15.1% in Q3 2022, in comparison to its 12.3% in Q3 2021. Not to mention their revenue for the first nine months of 2022 was $6.5 billion; this was up 16% in contrast to the first nine months of 2021. While other businesses faced significant slowdowns, Chipotle pushed through. Let’s take a look at why.
Starting with the elephant in the room– how did CMG stay on track during the pandemic while other stocks slowed down? It’s easy to say that the coronavirus hit restaurants the hardest. Many restaurants lost significant consumer base or lost all business completely. For Chipotle, though, unlike many of their competitors, it wasn’t their first rodeo. Since its opening in 1993, Chipotle has dealt with many outbreaks, some including Hepatitis, Salmonella, and several E. Coli viruses. Hence, Covid wasn’t its first time dealing with a virus. These prior outbreaks allowed Chipotle to have a head start on all of the protocols Covid put into place regarding sanitation. Even though CMG went down with the rest of the market when Covid hit, it quickly recovered thanks to the sanitation measures that were already in place, takeout and delivery, and even a partnership with Shopify creating a virtual farmer’s market. It’s safe to say they remained profitable and on track with their pre-Covid trajectory, getting CMG back up to $1000 by May 2020.
But persistence isn’t the sole answer to why CMG is so high. Especially given that the IPO in January 2006 was only $22 per share. So, why is CMG almost $2000?
First of all, Chipotle has a considerable online presence. They have used the internet, specifically their website and app, to drive their business. Digital sales have made a significant amount of Chipotle’s revenue; in fact, half of Chipotle’s sales are digital. Although Chipotle’s in store sales decreased during Covid, they were compensated by online sales. Then, as people started going out again, both digital and dining room sales remained strong, making the company profitable in all areas of sale, not just one.
Chipotle’s consistent brand image has also been a key factor to growth among customers. Whichever location you go to, the food quality and taste are the same. Consumers understand the product, and the customers know exactly what to expect when they order from Chipotle. Chipotle’s aspect of customization differentiates them from other fast food chains and they also provide healthier options for those in search of an affordable, healthy meal.
Furthermore, CMG has a small market share. When companies have more stocks, the prices of the stocks tend to be lower, versus when companies have less stocks, the prices are typically higher. By owning a Chipotle stock, you inherently have a larger percentage of the company. Consequently, CMG continues to beat its goals year after year. Since the company started, it has been set on meeting goals and improving after every quarter. Thanks to the company’s success, if you had invested $10,000 when Chipotle went public, your value now would be just short of a million dollars.
So… should you invest in Chipotle? While the company has had its ups and downs, for the most part, it has remained strong. With only around 3,000 stores– in comparison with McDonalds’ 38,000– the company still has room to grow and expand. Chipotle aims to open more stores each year, including testing out new concepts such as Chipotlanes: drive through Chipotles. As the company broadens, margins will be impacted positively, a good outlook for CMG. Still, there are risks in investing in Chipotle today, given the current prices. Remember, an investment of almost $2000 per share is very different from $22 and you’re unlikely to get the same returns. For those who do have ownership in Chipotle though, as by Zacks Rank, hold onto your share, at least until it hits $2000.
