A stock split doesn't always lead to a big rally. Chipotle Mexican Grill (CMG -0.41%) recently deployed a massive 50-for-1 stock split, but its shares have been going in the opposite direction of late. On June 27, the stock began trading on a post-split basis at just over $62. But last week, its shares dipped below $50.
Since then, the company has reported its latest earnings numbers, which remained strong. But despite this, the stock has been struggling. Is this just part of the market's recent pullback? Could this be a great time to buy the stock, or is there more trouble ahead for Chipotle?
The company's earnings looked good, but they came with a caveat
Chipotle's business has performed incredibly well, despite inflation. The company reported earnings in July, and comparable-sales growth was impressive, coming in at 11% for the period ending June 30. It was especially impressive that transactions were up by 8%. Greater traffic drove the strong numbers, as opposed to price increases, as has been the case for many other restaurant chains. The company has used price hikes to offset rising costs, and its margins have expanded as a result.
But the company hinted at some weakness ahead. Its restaurant operating margins were 28.9% this past quarter, an improvement from 27.5% a year ago. Next quarter, however, the company sees that shrinking to 25%, which suggests costs and wages are rising faster than price increases. For investors, that's a concerning sign as worsening margins will put pressure on the bottom line, which could make this already expensive stock look even pricier in the near future.
Chipotle's high valuation means investors expect perfection
Producing a strong quarter isn't enough to satisfy Chipotle investors because investors expect a lot. This is why the company has a high earnings multiple, which prices in a lot of future growth. While Chipotle's share price may have come down due to its stock split, its valuation remains high with respect to profitability.
The food stock is trading at just under 50 times trailing earnings, but it was far higher before this recent sell-off. The problem with such a high valuation is that expectations are also high. If the company fails to come through on guidance, as well as earnings, it can lead to a correction in the stock price.
Chipotle's business is generating good growth numbers, but that may not be enough for the stock to bounce back in the months and weeks ahead. It has a consensus analyst price target of more than $60, but analysts have been lowering their price targets in light of the recent developments as there is more bearishness around Chipotle's stock these days.
Should you buy Chipotle's stock?
Chipotle's stock is up more than 200% in the past five years and has proven to be an excellent investment. But at such a high premium, even with this recent sell-off, there's not a big margin of safety for investors should future quarters be underwhelming.
Unless you're prepared to hang on to the stock for multiple years, you may be better off holding off on buying shares of Chipotle. There are plenty of other good growth stocks to consider, instead. Its high valuation combined with concerns that its margins may be coming under pressure could make it difficult for Chipotle's stock to rally higher in the near term.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
FAQs
Chipotle has a consensus rating of Moderate Buy which is based on 17 buy ratings, 8 hold ratings and 0 sell ratings. What is Chipotle's price target? The average price target for Chipotle is $62.67. This is based on 25 Wall Streets Analysts 12-month price targets, issued in the past 3 months.
What is the 5 year forecast for CMG? ›
Growth Estimates
| CURRENCY IN USD | CMG | S&P 500 |
|---|
| Next Qtr. | 14.30% | 9.50% |
| Current Year | 21.10% | 2.90% |
| Next Year | 18.30% | 12.90% |
| Next 5 Years (per annum) | 21.17% | 11.84% |
2 more rowsAccording to analysts, CMG price target is 63.12 USD with a max estimate of 73.00 USD and a min estimate of 53.00 USD.
Who is the major investor in Chipotle? ›
was founded by Steve Ells in 1993. As of 2024, Brian Niccol is the company's Chairman of the Board of Directors and Chief Executive Officer. The top shareholders of Chipotle include Montgomery Moran, Steve Ells, Vanguard Group, and BlackRock.
Is now a good time to buy Chipotle? ›
With profit expected to grow by 74% over the next couple of years, the future seems bright for Chipotle Mexican Grill. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
Is CMG a good long-term investment? ›
Beloved restaurant chain Chipotle Mexican Grill(NYSE: CMG) has gotten a reputation for serving up delicious flavors and hot investment returns. The stock has returned nearly 6,000% over its lifetime, far exceeding the S&P 500's corresponding performance.
Where will CMG be in 5 years? ›
The company is still expanding at a fast rate, and it plans to open about 300 stores this year. At that pace, it should have 5,000 stores in five years from now. It's just getting started in some new European markets, and it recently signed its first deal for franchises with a partner in the Middle East.
What is the stock price projection for Chipotle in 2024? ›
Chipotle stock price forecast for September 2024. The forecast for beginning 56.08 dollars. Maximum price 59.84, minimum 48.13. Averaged Chipotle stock price for the month 54.75.
What is the future of Chipotle? ›
In its latest earnings report, Chipotle said it expects comparable restaurant sales to grow in the mid- to high-single-digit percentage range for fiscal 2024, and said it plans to open between 285 and 315 new locations over the fiscal year.
Who owns the most CMG stock? ›
What percentage of Chipotle (CMG) stock is held by retail investors? According to the latest TipRanks data, approximately 42.07% of Chipotle (CMG) stock is held by retail investors. Who owns the most shares of Chipotle (CMG)? Vanguard owns the most shares of Chipotle (CMG).
Stock Price Targets
| High | $73.00 |
|---|
| Median | $63.75 |
| Low | $53.00 |
| Average | $63.12 |
| Current Price | $53.03 |
Historical dividend payout and yield for Chipotle Mexican Grill (CMG) since 1971. The current TTM dividend payout for Chipotle Mexican Grill (CMG) as of September 11, 2024 is $0.00. The current dividend yield for Chipotle Mexican Grill as of September 11, 2024 is 0.00%.
Why invest in Chipotle stock? ›
Thanks to a strong performance over the years, Chipotle shares trade at a price-to-earnings (P/E) ratio over 53 at recent prices. That's a massive 120% premium to the overall S&P 500.
What is the highest Chipotle stock has ever been? ›
The all-time high Chipotle Mexican Grill stock closing price was 68.55 on June 18, 2024. The Chipotle Mexican Grill 52-week high stock price is 69.26, which is 27.6% above the current share price. The Chipotle Mexican Grill 52-week low stock price is 35.37, which is 34.8% below the current share price.
Is McDonald's still invested in Chipotle? ›
Founded by Steve Ells on July 13, 1993, Chipotle had 16 restaurants (all in Colorado) when McDonald's Corporation became a major investor in 1998. By the time McDonald's fully divested itself from Chipotle in 2006, the chain had grown to over 500 locations.
Why do people invest in Chipotle? ›
Reasons to consider buying Chipotle stock
Chipotle's business is booming. In the fourth quarter of 2023, the company's revenue jumped 15.4% year over year to $2.5 billion. This increase wasn't just the result of Chipotle opening a record number of new restaurants. Same-store sales at its existing restaurants rose 8.4%.
Is Chipotle a good buy after the stock split? ›
Key Points. Chipotle split its stock 50-for-1, joining a growing list of companies that opted for a split in recent years. The fast-casual giant is delivering strong revenue growth quarter after quarter. The picture is a little more complicated, but ultimately, there is more room to run for this stock.
Is Chipotle doing well financially? ›
You haven't exactly missed the boat at Chipotle
In fact, second-quarter financial results were particularly strong. Revenue was up 18% year over year with same-store sales jumping an astonishing 11%. Restaurant-level operating margin rose 140 basis points to 28.9%.
Is Chipotle overpriced stock? ›
A Barron's article observed that Chipotle shares are actually more expensive than Nvidia (NASDAQ:NVDA) stock, since Chipotle “trades at 70 times forward earnings.” I prefer to use the GAAP-measured trailing 12-month price-to-earnings ratio. It's around 67x for Chipotle and close to 73x for Nvidia.
