Chipotle Mexican Grill, Inc. (CMG) owns and operates Chipotle Mexican Grill restaurants. As of February 15, 2022, it owned and operated approximately 3,000 restaurants in the United States, Canada, the United Kingdom, France, Germany, and the rest of Europe.

Despite the present inflationary pressures and tightening consumer discretionary spending, CMG has remained resilient. The company delivered robust growth in its second quarter. CMG’s strong brand reputation helped it deal with rising input costs. Its comparable restaurant sales grew 10% year over year in the quarter.

While the stock has gained 21.2% over the past month, it has declined 9.4% year-to-date.

Here is what could shape CMG’s performance in the near term:

Latest Developments

In June, CMG announced its partnership with U.S. Women’s National Team (USWNT) soccer players Rose Lavelle and Sophia Smith to launch their go-to orders as official menu items on the Chipotle app and Chipotle.com for a limited time starting July 1.

Also, in the same month, CMG officially launched its loyalty program, Chipotle Rewards, in Canada. This is the latest advancement in CMG’s efforts to make the brand more approachable and strengthen its relationship with its Canadian community.

CMG executed its U.S. loyalty program in 2019, and in only three years, 28 million members have enrolled, making it among the fastest-growing loyalty programs in the history of the restaurant industry.

Strong Profitability

CMG’s 9.28% trailing-12-month net income margin is 45.8% higher than the 6.37% industry average. Also, its 38% trailing-12-month gross profit margin is 37% higher than its industry average of 2.63%.

Premium Valuation

In terms of forward P/E, the stock is currently trading at 48.24x, which is 275.1% higher than the 12.86x industry average. Also, its forward EV/Sales of 5.36x is 362.3% higher than the 1.16x industry average. Furthermore, CMG’s 5.03x forward Price/Sales is 419.3% higher than the 0.97x industry average.

Mixed Growth Prospects

CMG’s revenue is expected to increase 11.1% in the current quarter, 1.1% in the current year, and 13.6% next year. The EPS is expected to rise at a CAGR of 26.1% over the next five years. Also, analysts expect the company’s EPS to increase 30.5% in the current quarter, 29.2% in the current year, and 29.8% next year.

However, the analysts expect the company’s revenue to decline 20.9 % in the current quarter, 6.9% in the next quarter year, and 6.6% in the current year.

Upbeat Financials

For the second quarter ended June 30, 2022, CMG’s net revenue came in at $2.21 billion, representing a 17% year-over-year increase. Its income from operations increased 30% from its year-ago value to $527.82 million, while its adjusted net income grew 22.8% from its year-ago value to $261.19 million. Its adjusted EPS rose 24.7% from the prior-year quarter to $9.30.

Its net cash used in investing activities grew 4.7% from the previous period to $249.20 million for the six months ended June 30, 2022. Its net cash used in financing activities increased 132.5% from its prior period to $614.40 million.

POWR Ratings Reflect Uncertainty

CMG’s overall C rating equates to a Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CMG has a D grade for Value, which is justified given its higher-than-industry valuation. It also has a C grade for Stability. Its 1.27 stock beta is in sync with its Stability grade.

Among the 44 stocks in the B-rated Restaurants industry, CMG is ranked #24.

Beyond what I’ve stated above, you can view CMG ratings for Growth, Quality, Momentum, and Sentiment here.

Bottom Line

Despite the company’s ability to remain resilient during inflationary situations, CMG’s lofty valuation is concerning. Therefore, we think investors should wait before scooping up its shares.

How Does Chipotle Mexican Grill, Inc. (CMG) Stack Up Against its Peers?

While CMG has an overall C rating, one might want to consider its industry peer, Good Times Restaurants Inc. (GTIM) and Arcos Dorados Holdings Inc. Cl A (ARCO), which have an overall A (Strong Buy) rating, and Nathan’s Famous, Inc. (NATH), which has an overall B (Buy) rating.

CMG shares were trading at $1,586.39 per share on Friday morning, up $2.06 (+0.13%). Year-to-date, CMG has declined -9.26%, versus a -12.62% rise in the benchmark S&P 500 index during the same period.

About the Author: Spandan Khandelwal

Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing. More...

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