CMG Stock Analysis: Should You Buy Chipotle Following Its Recent Q2 Report?

Stocks to buy

Emerging as one of the best growth and restaurant stocks, Chipotle Mexican Grill (NYSE:CMG) continues to gain traction due to its unique menu and in-house operations. In Q1 2024, the company brought in a $2.7 billion revenue. Additionally, the company’s 50-for-1 split also was a key driver of a 21% year-to-date surge in CMG stock thus far this year.

However, with earnings now in the rear-view mirror, and Chipotle recently reporting its Q2 earnings, let’s dive into what was reported, and why the stock could be poised for more upside from here.

Diving Into the Numbers

Chipotle reported its Q2 numbers yesterday after the market closed. With the stock sinking more than 15% in the month before earnings, investors were a little concerned about margins. CMG stock was down 1% in afternoon trading.

Earnings per share came in at 34 cents on an adjusted basis, which beat expectations of 32 cents of adjusted earnings. Revenue also beat, with the company bringing in $2.97 billion on its top-line, exceeding expectations of $2.94 billion. Various price hikes have helped the company post continued earnings growth, and investors clearly like the cash flow growth profile this stock continues to provide.

Impressively, the company’s same-store sales grew 11% on a year-over-year basis, topping expectations by a rather wide margin. Stable growth is what many analysts are now expecting moving forward. However, as with many other restaurant stocks seeing volatility in their recent numbers, higher input costs combined with lower-priced offerings are weighing on margins.

Why Chipotle Continues to Boom

With its motto, “Food with Integrity,” Chipotle founder Steve Ells still stands by this vision. The company is committed to providing excellent food produced ethically with natural ingredients. The company adopted a non-GMO policy in 2013, and has been able to offset rising costs by raising prices even faster, something its competitors have not had the luxury of doing.

Now, it’s true that same-store sales growth has decreased on a quarter-over-quarter basis. But it’s also true that these numbers beat expectations by a rather wide margin. Thus, it will be interesting to see how CMG stock trades into next week.

That said, I do think Chipotle’s small menu is contributing significantly to its success. The company continues to minimize food waste by reducing the number of fresh ingredients needed. Quick service has been another benefit for consumers, as fewer menu options mean fewer mistakes. Indeed, for those seeking a quick-service restaurant stock with growth in this market, Chipotle remains a top option in the market for good reason

Buy and Hold CMG Stock

Chipotle has surged nearly 4x over five years and is up 28% year-to-date. After a 50-for-1 stock split, this stock has faced pressure. However, as with most declines in the past, this selling pressure essentially represented a buying opportunity.

Few quick service restaurant providers give investors the kind of growth Chipotle does, and its recent numbers speak to this thesis. There’s a lot to like about the company’s forward prospects, which is why I remain bullish on CMG stock.

On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

Articles You May Like

Greenlight’s David Einhorn says the markets are broken and getting worse
Stock-market investors cheered end of election uncertainty. Policy uncertainty remains.
Autonomous Vehicles: Why 2025 Will Usher in the Self-Driving Car
‘I’m 38 and completely broke’: I earn $50,000 a year. What professional degree will guarantee me six figures?
Gary Gensler says he was ‘proud to serve’ as SEC chair, defends his approach to crypto regulation