Over the past six months, Chipotle’s shares (currently trading at $50.50) have posted a disappointing 17.9% loss while the S&P 500 was down 2.5%. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Following the drawdown, is this a buying opportunity for CMG? Find out in our full research report, it’s free.
Why Is CMG a Good Business?
Born from a desire to offer quick meals with fresh, flavorful ingredients, Chipotle (NYSE: CMG) is a fast-food chain known for its healthy, Mexican-inspired cuisine and customizable dishes.
1. New Restaurants Opening at Breakneck Speed
The number of dining locations a restaurant chain operates is a critical driver of how quickly company-level sales can grow.
Chipotle operated 3,781 locations in the latest quarter. It has opened new restaurants at a rapid clip over the last two years, averaging 8% annual growth, much faster than the broader restaurant sector.
When a chain opens new restaurants, it usually means it’s investing for growth because there’s healthy demand for its meals and there are markets where its concepts have few or no locations.
2. Surging Same-Store Sales Show Increasing Demand
Same-store sales is an industry measure of whether revenue is growing at existing restaurants, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).
Chipotle has been one of the most successful restaurant chains over the last two years thanks to skyrocketing demand within its existing dining locations. On average, the company has posted exceptional year-on-year same-store sales growth of 6.2%.
3. Economies of Scale Give It Negotiating Leverage with Suppliers
With $11.49 billion in revenue over the past 12 months, Chipotle is one of the most widely recognized restaurant chains and benefits from customer loyalty, a luxury many don’t have. Its scale also gives it negotiating leverage with suppliers, enabling it to source its ingredients at a lower cost.
Final Judgment
These are just a few reasons why we're bullish on Chipotle. With the recent decline, the stock trades at 38.2× forward P/E (or $50.50 per share). Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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