Chipotle’s Current Stock Performance and Outlook
Chipotle’s recent stock performance has shown significant decline, with the stock down over 25% from its peak following former CEO Brian Niccol’s departure last summer. Eight months after Scott Boatwright took over as CEO, questions arise about whether the transition is still affecting the company’s performance.
The reasons for the drop in Chipotle’s stock are not entirely clear. It remains uncertain whether the decrease is due to temporary factors or if investors should reassess their perspective on the company.
Current State of Chipotle
Initially, the CEO change was expected to have minimal impact as Boatwright, the former chief operating officer, presumably played a part in previous strategic decisions under Niccol. Despite this continuity, the first quarter of 2025 earnings report raises concerns. Chipotle reported a 0.4% decrease in annual comparable-restaurant sales, attributed to consumer uncertainty by Boatwright. This contrasts sharply with the 7.4% increase in 2024 and 5.4% growth in Q4 of the previous year.
Chipotle increased its restaurant count to 3,781 in Q1, a growth of 302 locations over 12 months, representing an 8% increase. Despite $2.9 billion in Q1 revenue—a 6.4% rise—there is evident loss of momentum on a per-restaurant basis. The operating margin increased to 16.7% from 16.3% the previous year, leading to an 8% increase in net income, totaling $387 million. Nevertheless, the company forecasts that comparable-restaurant sales growth will remain in the "low single digits" for the year, leading to potential adjustments in shareholder expectations for future growth.
Evaluating Chipotle as an Investment
Historically, Chipotle’s stock has outperformed the S&P 500 over extended periods. However, this trend changed in July last year, preceding Niccol’s resignation. While there was a post-departure stock increase, it has steadily declined by 15% over the past 12 months.
Concerns also arise from the company’s valuation amid the slowdown. Chipotle’s price-to-earnings (P/E) ratio stands at 45, lower within its five-year range. This figure significantly contrasts with valuations of more mature restaurant stocks like McDonald’s and Starbucks, which trade at 28 and 27 times earnings, respectively. Maintaining a high P/E may prove challenging for Chipotle, and any sustained growth slowdown could align its valuation more closely with its mature peers, possibly leading to a further stock price pullback.
However, Chipotle’s relatively smaller size compared to its competitors could facilitate a higher expansion rate. It plans to open 315 to 345 new locations in 2025 and expand into Mexico, reflecting its commitment to rapid growth and potential to sustain a premium valuation.
Investment Considerations for Chipotle Stock
Currently, Chipotle stock might be best regarded as a hold. Despite presenting a strong value proposition through its ongoing expansion, uncertainties tied to leadership changes and economic conditions have impacted investor confidence and sales growth.
Moreover, Chipotle’s P/E ratio may be more fitting for the higher growth seen in previous years. Until more attractive pricing or clearer growth pathways emerge, potential investors might consider holding off on purchasing additional shares.
