Chipotle Mexican Grill stock (NYSE: CMG) has seen a significant 39% increase since the beginning of the year, with the current price standing at around $3173 per share. This growth has largely outperformed the broader indices, such as the S&P 500, which grew by about 12% over the same period. Chipotle’s positive performance can be attributed to various factors like strong financial performance, restaurant-level operating margin expansion, menu innovation, price increases, and successful digital strategies. However, it’s important to note that CMG shares are trading at a premium valuation of 68x forward price-to-earnings ratio compared to competitors like McDonald’s and Starbucks.
Chipotle has shown strong gains of 130% since early January 2021, outperforming the S&P 500 over a roughly 3-year period. However, the stock’s performance has been inconsistent, with returns being 26% in 2021, -21% in 2022, and 65% in 2023. Chipotle underperformed the S&P in 2021 and 2022, highlighting the challenges of consistently beating the market. In the uncertain macroeconomic environment, with high oil prices and elevated interest rates, the question arises whether Chipotle could face a similar situation as in the past and underperform the S&P in the coming year.
Following the Q1 release, Chipotle’s forecast for fiscal year 2024 includes revenues of $11.4 billion and earnings per share of $55.65. Based on these forecasts, Chipotle’s valuation has been revised to $2794 per share, indicating a potential decline from the current market price. Despite this, Chipotle’s business continues to boast remarkable store economics with strong revenue and profitability growth in Q1. The company’s digital sales remain robust, contributing to overall profit growth. Additionally, Chipotle’s rewards program and drive-thru option have been successful in driving sales and margins.
Chipotle’s stock split, subject to shareholder approval in June, could make the company more approachable for retail investors. The split would bring current share prices down from nearly $3,173 to about $63, making it more affordable for individual investors. This could lead to increased demand for the stock as more people are able to purchase shares. Looking ahead, Chipotle’s outlook for 2024 includes mid-to-high single-digit growth in comparable restaurant sales and the opening of 285 to 315 new restaurants.
Chipotle’s strong performance and strategic initiatives have positioned it well in the fiercely competitive restaurant industry. Despite trading at a premium valuation, Chipotle’s focus on store economics, digital innovation, and drive-thru options set it apart from its peers. With the potential for further gains in the stock price, investors may see Chipotle as a worthy investment option. As Chipotle continues to expand its footprint and drive profitability, the company’s stock split and ongoing business strategies could drive further growth and value for shareholders.
