Chipotle Mexican Grill (NYSE: CMG) stock is down 13% year-to-date after a spectacular rise between 2018 and 2021. Is now the time to buy shares in CMG?
What is Chipotle?
Chipotle Mexican Grill is a global fast-casual restaurant specializing in tacos and Mission burritos. The company is expanding throughout North America. Many of its new restaurants feature a Chipotlane, a digital order drive-thru pickup lane.
Chipotle currently owns and operates approximately 2,900 Chipotle Mexican Grill restaurants in the United States, Canada, the United Kingdom, France, and Germany.
Its premise is merging fast food and fine dining. Chipotle embraced the fast-casual ambiance by using high-quality fresh ingredients, classic cooking techniques, and distinctive interior design.
How does Chipotle make money?
Chipotle makes money from selling its meals to diners in its restaurants and digital takeaway sales.
CMG Financial Overview and Metrics
P/BV: 17.5
P/S: 5.8
P/E: 58
Market Cap: $41bn
Chipotle does not offer a dividend.
Cash, investments and restricted cash: $1.4bn
Debt: None
Credit Facility: $500m
Chipotle Q4 2021 (to Dec 31) Highlights:
Revenue: $2bn (up 22% Y/Y)
Operating Margin: 8.1% (up from 7.3% Y/Y)
Diluted earnings per share (EPS): $4.69 (down from $6.69)
* Legal expenses and additional impairment costs in Q4 reduced its EPS.
Comparable Restaurant Sales: (rose 15.2%)
Digital Sales: 41.6% of sales (up 3.8% Y/Y)
Chipotle opened 78 new restaurants in Q4
Full Fiscal Year Ended December 31, 2021 Highlights:
Revenue: $7.5bn (up 26.1%)
Operating Margin: 10.7% (up from 4.8% Y/Y)
Diluted earnings per share (EPS): $22.90 (up 82.9% from $12.52)
Comparable Restaurant Sales: (rose 19.3% Y/Y)
Digital sales: 45.6% of sales (up 24.7% Y/Y)
Chipotle opened 215 new restaurants in 2021.
Brian Niccol, Chairman and Chief Executive Officer, Chipotle, said:
"Moving forward, we believe expanding access and convenience through our digital ecosystem, accelerating unit growth, and continuing to develop and support our restaurant employees, will put us in a much stronger competitive position."
2022 Projections:
Q1 20222 comparable restaurant sales growth: “mid to high single digits.”
Restaurant Openings: 235 to 250
New Chipotlane Builds: 5 to 10 relocations
CMG Stock: $1,696 Price Target from Deutsche Bank Research
Brian Mullen, a research analyst at Deutsche Bank Research, downgraded his October price target of $1,747 to $1,696 on February 9, maintaining a Hold rating on CMG stock.
Analyst outlook is optimistic, and FactSet consensus has an Overweight rating on CMG shares.
On 8 February 2022, FactSet identifies a potentially positive impact on the company's price within the next 20 days based on the company's latest transcripts.
MACRO Outlook:
Pandemic restrictions have wreaked havoc on restaurant businesses, including reduced hours, reduced seating capacity and less staff.
While Omicron is still with us, learning to live with the virus appears to be the way forward. However, the rising oil price and inflationary headwinds could all make the cost of operating these businesses higher. If people have less money to spend, eating out is less of a priority. This is particularly prevalent as the restaurants raise their prices to maintain their margins.
According to the National Restaurant Association, the restaurant industry added over 100k jobs in January. However, this is still close to one million jobs less than pre-pandemic levels.
Is CMG in trouble?
CMG is in a strong cash position with no debt, which puts it ahead of many in the restaurant industry. It has ambitious expansion plans and is adapting to a new pace of life. However, the inflationary environment is a concern, and COVID still poses headwinds.
Risks to investing in CMG
The business faces the same risks many companies face today. These include competition, digital growth, competing for third-party delivery services, carefully managing social media and avoiding fraud and cyber attacks.
Chipotle’s biggest concern is inflation because to keep serving high-quality food, it needs to charge a premium and continue to attract customers willing to pay.
Staffing and labor shortages are other concerns, leading to cost fluctuations. The same goes for ingredient costs.
If Chipotle fails to grow its business in the way it envisions, the share price could continue to suffer.
Who are Chipotle competitors?
Chipotle rivals and comparable companies include:
Del Taco Restaurants (NASDAQ: TACO)
BurgerFi International (NASDAQ: BFI)
Is CMG a good investment?
Chipotle is set on continued expansion to 7,000 Chipotle restaurants in North America. With cash on hand, the company is building a real estate pipeline to accelerate unit growth of 8% to 10% per year, with greater than 80% of new restaurants having a Chipotlane.
It is also trialing themed restaurants and bringing in new dishes. Last year, Chipotle launched Cauliflower Rice in January, Quesadillas in March, and Smoked Brisket in September.
Chipotle operates a rewards program that now has over 26.5 million members. The company continues to customize and gamify this to boost customer loyalty.
Chipotle also confirmed its tremendous progress on staffing levels in its recent earnings call and is looking to be staffed at pre-COVID levels soon.
There’s a lot to like about Chipotle, and the stock is more attractive at its current level. But it could easily have further to fall as its financial metrics suggest it could still be overvalued.
Many retail investors prefer funds to individual stocks as financial professionals operate them with inside knowledge and insight.
Chipotle shares could alternatively be purchased via a mutual fund to potentially reduce investment risk and volatility.
For instance, CMG stock is currently included in:
Pershing Square Holdings (LON: PSH)
Vanguard Total Stock Market Index Fund ETF (LON: 0LOS)
American Funds Growth Fund of America (MUTF: AGTHX)
Edgewood Growth Fund Retail Class (MUTF: EGFFX)
Vanguard 500 Index Fund (MUTF: VFINX)
If you’re interested in investing in restaurant stocks, why not check out our recent article on ShiftPixy.
