Where will Chipotle Mexican Grill be in 5 years?

Chipotle Mexican Grill (CMG 0.49%) the stock has been an incredible investment for shareholders who have taken a long-term view. It’s a perpetual market-beating action backed by phenomenal reliable performance.

But its shares fell last week after it told investors that CEO Brian Niccol, who has effectively turned it into what it is today, is leaving. Does this mean its run is over? Let’s see where it could be in five years and whether or not it makes sense to buy it today.

Where is Chipotle today?

Chipotle is in a great position today. Without the news of Niccol’s departure, there wasn’t much to worry about. It has performed flawlessly over the past few years despite major pressure from a global pandemic and inflation. It has practically weathered these challenges with increased sales, expanded margins and high profitability.

This was easily demonstrated in the second quarter. Sales rose 18.25% year-over-year, driven by an 11.1% increase in comparable sales. Operating margin increased from 17.9% last year to 19.2% this year, and earnings per share (EPS) increased from $0.25 last year to $0.33 this year.

It also received a lot of attention for a stock split that took place in June. It was one of the largest in the stock market, dividing each share into 50 pieces. A stock split implies that a company is doing well enough to raise its stock price, and with a four-figure price, it may have been out of reach for some investors. Dividend stocks usually continue with additional gains, although like any stock, this means over the long term.

Chipotle has what it takes to keep going. Comparable growth is a good indication that fans are coming back for more and is showing resilience while many other restaurant chains struggle. Many chain restaurants have sprung up over the years trying to be the next Chipotle, but so far none have come close to its success.

The company continues to expand at a rapid pace and plans to open approximately 300 stores this year. At this rate, they should have 5,000 stores five years from now. It is just starting out in several new European markets and recently signed its first franchise agreement with a partner in the Middle East. This will add to the number of new stores over the next five years and could be much higher internationally.

What the CEO change could mean for the company

The question on everyone’s mind is how much of future success will depend on the CEO? I think most investors and most of Chipotle’s team were surprised by this announcement. Apparently it was an unexpected and quick process for Starbucks to catch Niccol, and Chipotle may not have been ready for it.

Meanwhile, longtime CFO Jack Hartung, who had planned to retire, is staying on indefinitely to help steer the ship forward. COO Scott Boatwright has been named interim CEO, which on the surface is a solid choice. As COO, he was responsible for the company’s processes, and this is one of the main things Niccol tackled when he came on board just a year after Boatwright. In fact, this is one of the main reasons for Chipotle’s success and why Starbucks has hope for what Niccol can do to turn it around. The intermediate transition should go smoothly, with no reason to worry about any quick changes or issues.

However, it’s harder to imagine where Chipotle might be in five years. The new CEO’s job would be to not mess up what’s already there rather than implement any unnecessary changes that might rock the boat. But new CEOs like to build their own teams and do things their way.

It’s not always like that. Costco Wholesale we got a new CEO and CFO this year and nobody really blinked. The CEO is a longtime Costco veteran who wasn’t about to reinvent the wheel. Similarly, Visa got its new CEO last year and things have gone as expected.

What makes this potentially different is that it doesn’t seem like this was an organized move with a succession plan in place. It’s also at a time of volatility for the restaurant industry.

Reasons for trust and caution

Chipotle may have needed Niccol to get to where it is today, but it should be able to find an effective leader to continue the good work. At the same time, it is an unknown for now, which always comes with some risk.

Five years from now, the likelihood is that Chipotle will climb as it has in recent years. It will be bigger, with more sales and more profits. It should have a competent CEO leading it there, and it should continue to be a market-beating stock.