The Growth Story of Chipotle Mexican Grill in 4 Simple Graphs

Chipotle Mexican Grill (NYSE:CMG) the stock is up about 340% over the past five years as the S&P500 increased by 85%. The fast-casual restaurant chain has repeatedly impressed investors with its robust growth, steady expansion and rising margins.

Today the stock may seem expensive, at 57 times forward earnings, but a look at its growth history through four simple charts is enough to see if it’s still worth buying.

Image source: Getty Images.

1. Regular restaurant openings

Contrary to McDonalds, which founded Chipotle in 2006 and generates most of its revenue through franchise fees, Chipotle directly owns and operates all of its restaurants. This business model requires more capital, but it allows the company to tightly control its supply chain, maintain better quality control measures, and expand freely without relying on franchisees.

Chipotle is opening new restaurants at a much faster pace than many of its peers. Its year-end store count increased from 2,491 in 2018 to 3,437 in 2023, and the company plans to open 285 to 315 new locations this year.

Data source: Chipotle. Table by author.

2. Impressive comp growth

Some restaurants open many new locations to increase sales, but fail to increase their same-store sales as they mature. Therefore, it is often a red flag when a restaurant chain is experiencing positive revenue growth but negative revenue growth.

Once again, this is an area where Chipotle stands out from its peers. In addition to opening new stores every year, its sales are constantly increasing. This key industry metric even rose at the start of the pandemic in 2020, thanks to strong digital sales, and continued to rise over the next three years. Management expects to generate mid-to-high single-digit business growth in 2024.

Data source: Chipotle. Table by author.

3. Increase in restaurant operating margins

Over the past two years, the restaurant industry has faced severe inflationary challenges due to rising food and labor costs. But after falling during the pandemic in 2020, Chipotle’s restaurant operating margins increased over the next three years.

Data source: Chipotle. Table by author.

Chipotle offset inflationary pressure by raising its menu prices and opening more drive-thru Chipotlanes to accelerate order volumes. It plans to open Chipotlanes in more than 80% of its new locations this year.

4. Consistent revenue and profit growth

Chipotle’s new store openings, steady sales growth and expanding margins have allowed it to generate stronger revenue and profit growth than major fast food chains like McDonald’s and Yum! Brands over the last five years.

Source: YCharts.

From 2023 to 2026, analysts expect Chipotle’s revenues to post a compound annual growth rate (CAGR) of 14% while its earnings per share (EPS) grow at a CAGR of 22%. This growth is expected to be fueled by the expansion of its digital orders (which represented 36.5% of its total revenue in the first quarter of 2024), the rigor of its loyalty program and its expansion in Europe.

By comparison, analysts expect only single-digit revenue and profit growth for McDonald’s and Yum! Brands over the same period.

Is now a good time to buy Chipotle?

Chipotle’s business is still operating at full capacity, but much of its growth is already tied to its valuation. McDonald’s trades at just 21 times forward earnings, while Yum has a slightly higher forward multiple of 23. As a result, Chipotle stock could experience volatility, particularly if its earnings growth slows or its profit margins decrease.

For now, investors can still snack on Chipotle stock as it prepares for its 50-for-1 stock split on June 26. However, it’s smarter to estimate the dollar cost average in this growth game over multiple months or quarters instead of doing it all. at current levels.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool posts and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.