Chipotle Mexican Grill (NYSE: CMG) has been a high development inventory within the restaurant trade for years. Its fast development has made it a high funding to personal, with shares rising by 300% over the course of the previous decade.
Just lately, nonetheless, the corporate misplaced its CEO, Brian Niccol, to Starbucks. Even the joy surrounding Chipotle’s 50-for-1 inventory cut up hasn’t been sufficient to stop shares from falling of late. Prior to now three months, the inventory is down 13%.
Is Chipotle’s inventory in hassle, or may this current decline be an amazing shopping for alternative for buyers?
The corporate’s development prospects stay spectacular
Whereas many eating places have struggled to develop their high strains with out relying closely on worth will increase, Chipotle has confirmed to be the exception. When the corporate final reported earnings in July, its quarterly income for the interval ending June 30 rose 18% to $3 billion. And its same-store gross sales development was a formidable 11%, with increased transactions representing the majority of the expansion (almost 9%) and better costs boosting the numbers by an extra 2%.
For a lot of eating places, reaching even single-digit comparable gross sales numbers is spectacular, not to mention double-digit will increase, as is the case for Chipotle. And to have that being primarily pushed via elevated visitors is outstanding. Identical-store numbers solely evaluate eating places which have been open for greater than a 12 months, and thus, the metric provides buyers a greater perception into the corporate’s true natural development, because it excludes the influence of further retailer openings.
Chipotle has averaged an total development fee of round 16% over the previous 5 years, and its current numbers have are available even higher.
CMG Revenue (Quarterly YoY Growth) knowledge by YCharts
A change in CEO does not essentially put the corporate in a nasty place
Buyers had been bearish on Chipotle’s inventory after studying that its CEO was leaving the corporate, however that does not essentially imply the enterprise is in hassle. With Starbucks providing Niccol a gorgeous compensation package deal to lure him away from the fast-growing restaurant chain, it might have merely been a proposal that was too good for the chief to refuse.
Given its sturdy development numbers and plans for continuous growth, there is not any cause to fret that Chipotle will in some way go on the unsuitable path from right here. The corporate’s interim CEO, Scott Boatwright, has been with the corporate since 2017 and has most not too long ago been its chief working officer. Chipotle is not changing Niccol with somebody outdoors the enterprise and who could also be unfamiliar with it.
With Boatwright, the corporate has a CEO who has been integral in Chipotle’s development in recent times, and who could also be prone to proceed with the present path and development technique. Whereas there might be adjustments, there is not any cause as of now to anticipate any drastic ones.
Do you have to purchase Chipotle inventory?
Chipotle buyers might not wish to see that their CEO has opted to depart, however that does not imply the corporate is in some way in a worse place. If, nonetheless, it ends in an additional decline in worth, this might certainly create a shopping for alternative for buyers to purchase shares of an distinctive restaurant chain.
Buying and selling at 50 instances its estimated future earnings (in accordance with analyst expectations), Chipotle’s valuation stays excessive, and that could be the most important cause to carry off on shopping for the restaurant stock proper now — not a change in CEO. I might argue {that a} correction within the inventory worth was overdue as a result of the inventory was buying and selling at such a excessive premium.
Chipotle inventory can nonetheless be an excellent purchase in case you’re planning to hold on to it for the long run (e.g., a number of years), however I’d wait to see if there’s extra bearishness from buyers that sends its worth even decrease. At a decrease earnings a number of, there could be a minimum of some potential margin of safety and never as a lot future development priced into the inventory’s valuation, making it extra possible that buyers can earn a excessive return.
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David Jagielski has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Chipotle Mexican Grill and Starbucks. The Motley Idiot recommends the next choices: brief September 2024 $52 places on Chipotle Mexican Grill. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the writer and don’t essentially mirror these of Nasdaq, Inc.
