Over the last 20 years, Chipotle stock has seen substantial growth, with a total return level of 7,000% since its initial public offering. However, the stock is currently considered expensive with a price-to-earnings ratio of 67, making it less appealing from a growth perspective compared to previous years. Investors seeking restaurant stocks with potential for high returns should consider smaller companies that could be the next Chipotle. One such candidate is Portillo’s, a Chicago-centric restaurant concept known for its fast-casual Chicago street food.
Portillo’s, though lesser-known compared to giants like Chick-fil-A or Chipotle, boasts impressive restaurant-level economics with average unit volumes of $9.1 million in 2023, similar to Chick-fil-A. The company currently operates 84 restaurants primarily in the Chicago area but is expanding to states like Arizona, Texas, and Florida in hopes of growing its unit count by at least 10% annually. With plans to eventually expand its unit count tenfold, Portillo’s management believes it has a long runway for growth.
Despite its modest size, Portillo’s is highly profitable, with a consolidated operating margin of 7.6% over the last 12 months. The company has maintained positive margins since going public in 2021, even amid industry-wide inflation. As it scales to more locations, Portillo’s expects operating margins to improve, potentially reaching $100 million in annual earnings with an annual revenue of $1 billion in the near future.
With a market cap of $890 million and enterprise value of around $1.5 billion accounting for debt, Portillo’s stock appears undervalued considering its growth potential. If the company can continue to increase its unit count and margins, it should be generating $100 million in earnings in a few years, presenting an enterprise value-to-earnings ratio of 15. This suggests the stock is cheap for a company with significant growth prospects ahead.
Portillo’s has the potential to become the next Chipotle, with a strong focus on expanding its presence across the United States while maintaining impressive unit economics. Investors looking for long-term growth opportunities in the restaurant industry should consider buying this stock and holding onto it for many years. While Portillo’s may not be one of the current top stock picks recommended by The Motley Fool Stock Advisor team, it presents a promising opportunity for investors seeking high returns in the coming years.
