Chipotle Stock Soared on Positive Earnings — Is It a Buy, Sell or Hold?

NYSE: CMG | Chipotle Mexican Grill Inc. News, Ratings, and Charts

CMG – Chipotle Mexican Grill (CMG) reported strong revenue growth despite sky-high inflation and decreased consumer discretionary spending. However, given its high valuation, would it be worth buying the stock now? Let’s find out…

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 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...

More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
CMGGet RatingGet RatingGet Rating
GTIMGet RatingGet RatingGet Rating
ARCOGet RatingGet RatingGet Rating
NATHGet RatingGet RatingGet Rating

Most Popular Stories on

3 AI Stocks to Buy Now

AI regulation is a foregone conclusion, it's just left to be determined who in government will formulate the rules and enforce them. Elon Musk thinks a whole new agency will be needed to enforce the massive amount of regulation coming down the road. These three companies, Red Violet (RDVT), Akamai (AKAM) and Cisco (CSCO), are at the forefront of companies implementing those regulations, and should see a pretty penny in profits for their work.

How Low Will Stocks Go?

The Fed threw some gasoline on the stock sell off fire last week. With that stocks are exploring new lows with the 200 day moving average in play at 4,195 for the S&P 500 (SPY). Is it time to buy stocks...or run for cover? 43 year investment veteran Steve Reitmeister shares his latest insights including how low he expects stocks to go. Plus information on his top 11 picks for today’s volatile market. Read on below for more...

My Favorite Energy Stock Under $10

Oil is back in the headlines as it has rocketed higher on a combination of factors over the past two months. This means oil stocks should definitely be back on your radar. And this under $10 oil stock has popped up on the POWR Ratings radar, Battalion Oil (BATL).

Buy Rating Issued on THIS 10% Yield Stock

In the current high mortgage rate environment, and with financial instability growing in the commercial real estate market, you want to be extra diligent when investing in mortgage lenders. This lender has a sterling track record of providing short term loans to those needing some quick extra cash. And Manhattan Bridge Capital (LOAN) is rewarding investors with a hefty dividend.

Stock Alert: Just Another BUY THE DIP Opportunity

Traders threw a tantrum after the Fed shared details on their rate hike plans. This has the S&P 500 (SPY) hitting the lowest level in quite a while. Gladly, things are not as dire as they seem. That is why Steve Reitmeister shares his latest insights to explain why a bull market is still in place...and how to target the best stocks and ETFs for the days ahead. Read on for the full story below...

Read More Stories

More Chipotle Mexican Grill Inc. (CMG) News View All

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All CMG News