Chipotle Mexican Grill: Can the Momentum Continue?

Chipotle Mexican Grill (CMG) stock has been one of the hottest fast-food companies of late, now up 47.2% year-to-date.

Unlike many other names in the quick-serve restaurant scene, CMG stock has already dwarfed losses from the coronavirus crash, more than doubling from its pre-pandemic highs to flirt with $2,000.

Undoubtedly, Chipotle has really shined amid the COVID-19 pandemic, crushing analyst estimates and managing through pandemic-related challenges such as staffing issues, as most other fast-food giants struggled to move meaningfully higher than pre-pandemic peak levels.

Many analysts have had to hike their price targets on the name following its incredible growth numbers. As Chipotle’s valuation continues to swell on the back of robust earnings, I’m more inclined to remain neutral on the stock, rather than chasing it on strength. (See CMG stock charts on TipRanks)

Chipotle may be one of the most powerful forces in the restaurant industry these days. At north of 92 times trailing earnings however, shares have a lot of optimism already baked in.

Is Chipotle’s Growth Sustainable?

Chipotle has steadily been taking market share away from its competitors amid the crisis. The incredible sales momentum behind Chipotle has allowed investors to look beyond the COVID-19 Delta variant, and its potential impact going into year-end.

The real question on investors‘ minds is whether Chipotle can continue to outpace its peers, even as industry tides turn against all boats in the industry.

Wedbush Securities recently issued a note stating that Chipotle’s growth is “sustainable,” and poised to continue through the coming two quarters, with same-store sales growth (SSSG) likely to be in the “mid-to-high teens.” That’s some serious growth, which is currently above Chipotle’s guidance of SSSG in the low-to-mid teens.

If Wedbush is right and Chipotle can sustain these current levels of growth, even as year-over-year comparisons look to become slightly less favourable, Chipotle stock could easily break above $2,100.

Wedbush analyst Nick Setyan has a $2,150 price target on the stock, implying a respectable 11.8% return from current trading levels.

Wall Street’s Take

According to TipRanks’ consensus analyst rating, CMG stock comes in as a Moderate Buy. Out of 23 analyst ratings, there are 16 Buy recommendations, and seven Hold recommendations.

The average Chipotle price target is $1,880.29. Analyst price targets range from a low of $1,600 per share, to a high of $2,250 per share.

Bottom Line

As most other companies within affected industries point the finger at the coronavirus, Chipotle looks to be going full speed ahead. Few setbacks, including the return of COVID-19 restrictions, appear severe enough to stop the company in its tracks.

Simply put, the appetite for Chipotle has not faded amid the pandemic. It continues to grow rapidly, and for that reason, Chipotle ought to be viewed as a winner.

That said, the valuation is rich, with the average analyst price target now calling for 2.2% downside. While further price target upgrades may be warranted, investors may prefer to wait, as the big winner may prove to be too hot to handle.

Disclosure: Joey Frenette doesn’t own shares of any stock mentioned at the time of publication.

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Joey Frenette
Joey writes analysis of individual stocks and stock comparison articles for TipRanks. He is a Buffett follower who enjoys hunting down undervalued securities. He is an engineering graduate from UBC with a wealth of experience working at various Canadian tech firms and has passed CFA Level 1. Joey has written extensively about stock picks from the NYSE and NASDAQ. He researches and analyzes stocks to provide investment ideas. Follow him on LinkedIn or Twitter/X @realJoeFrenette