There are some restaurant ideas that simply click on with customers, and people companies can flip into long-term progress machines. This has been the case for Chipotle Mexican Grill (CMG 0.47%).
Regardless of pioneering the now ubiquitous fast-casual restaurant class and delivering unbelievable returns to buyers since 2006, the expansion of this burrito chain is nowhere close to over if administration’s plans are any indication. That, nevertheless, is simply half the rationale why I feel this inventory nonetheless has loads of progress forward of it.
What an idea
Chipotle solely sells a handful of merchandise, together with consists of tacos, burritos, and bowls. The trick to the corporate’s success has been its choose-your-own-adventure ordering, the place clients stroll down an meeting line and pick every freshly made ingredient. It’s, thus, extremely personalized meals that’s each moderately priced and shortly served.
Picture supply: Getty Photographs.
Prospects adore it, and that is actually the large story right here. Regardless of the very fact Chipotle has been elevating costs to offset inflation, the corporate’s 2022 third-quarter same-store gross sales rose 7.6%. Maybe much more impressively, store-level working margins improved 180 foundation factors 12 months over 12 months. New retailer openings, in the meantime, helped to push total gross sales up 13.7% for the quarter.
If that is the efficiency this restaurant chain places up in a tricky setting, think about what it’ll do when working circumstances enhance.
Larger and greater
Having a loyal buyer base that features over 28 million members in its loyalty program is crucial, however Chipotle’s long-term outlook actually begins to get thrilling when you think about the corporate solely has round 3,100 eating places. Administration’s aim is to broaden that quantity to 7,000. Meaning the corporate desires to greater than double in measurement with a aim for 2023 of opening between 255 and 285 new places. It expects to be roughly on the low finish of that vary when the ultimate tally is available in for 2022, so this isn’t an unrealistic aim. On the present charge, it might take over a decade for the corporate to hit its long-term goal.
In different phrases, Chipotle may ship one other 10 or so years of sturdy progress earlier than it shifts gears. Most progress buyers ought to discover that form of alternative and timeline to be an interesting proposition. However this is an attention-grabbing truth: The inventory has pulled again round 20% from the all-time excessive it reached in 2021. There have been deeper drawdowns prior to now, however Chipotle is bigger than it was again then, now producing trailing-12-month income of $8.4 billion.
Knowledge by YCharts.
A 50%-plus decline, as Chipotle inventory has skilled earlier than, can be an enormous shopping for alternative. But given the growing scale of the corporate and its confirmed longevity, you should not financial institution of seeing one other drop like that once more. As an alternative, progress buyers with a long-term perspective ought to see the 20% decline as a chance. Perhaps there’s the potential of extra near-term ache if the bear market continues to move decrease, however for those who sit again and await the right entry level, chances are you’ll find yourself lacking out totally ought to markets rebound prior to you anticipate.
Do not be afraid
There is a well-liked Warren Buffett quote that claims you ought to be grasping (purchase shares) when others are fearful. That concern has punished broad swathes of the market prior to now 12 months, taking down nice firms within the course of. Chipotle is a kind of firms with sturdy fundamentals and thrilling long-term progress prospects. This progress inventory is unlikely to remain down for lengthy if historical past is any information.
Reuben Gregg Brewer has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Chipotle Mexican Grill. The Motley Idiot has a disclosure coverage.
