Is Chipotle Mexican Grill stock in trouble?

Chipotle Mexican Grill (CMG 0.81%) has been a top growth stock in the restaurant industry for years. Its rapid growth has made it a top investment to own, with shares up 300% over the past decade.

However, the company recently lost its CEO, Brian Niccol Starbucks. Even the excitement surrounding Chipotle’s 50-for-1 stock split hasn’t been enough to keep the stock from falling lately. Over the past three months, the stock has fallen 13%.

Is Chipotle stock in trouble, or could this recent dip be a great buying opportunity for investors?

The company’s growth prospects remain impressive

While many restaurants have struggled to grow their top lines without relying heavily on price increases, Chipotle has proven to be the exception. When the company last reported earnings in July, its quarterly revenue for the period ended June 30 rose 18% to $3 billion. And its same-store sales growth was an impressive 11%, with larger transactions accounting for most of the increase (nearly 9%) and higher prices pushing the numbers up another 2%.

For many restaurants, achieving even single-digit comparable sales figures is impressive, let alone double-digit increases like Chipotle’s. And for this to be primarily driven by increased traffic is exceptional. The same-store numbers only compare restaurants that have been open for more than a year, so the metric gives investors a better view of the company’s true organic growth because it excludes the impact of additional store openings.

Chipotle has averaged about 16% overall growth over the past five years, and its recent numbers have gotten even better.

CMG (Quarterly Annual Growth) revenue data by YCharts

A change of CEO does not necessarily put the company in a bad position

Investors were bullish on Chipotle shares after learning that its CEO was leaving the company, but that doesn’t necessarily mean the business is in trouble. Since Starbucks offered Niccol an attractive compensation package to lure him away from the fast-growing restaurant chain, it may have simply been too good an offer for the executive to refuse.

Given its strong growth numbers and continued expansion plans, there’s no reason to worry that Chipotle will somehow go down the wrong path from here. The company’s interim CEO, Scott Boatwright, has been with the company since 2017 and most recently served as the company’s chief operating officer. Chipotle is not replacing Niccol with someone outside the business who may not be familiar with it.

With Boatwright, the company has a CEO who has been integral to Chipotle’s growth over the past few years and can continue with its current path and growth strategy. While there could be changes, there’s no reason right now to expect any drastic ones.

Should You Buy Chipotle Stock?

Chipotle investors may not like to see their CEO choose to leave, but that doesn’t mean the company is in a worse position. If, however, this leads to a further drop in price, this could indeed create a buying opportunity for investors to buy shares of a great restaurant chain.

Trading at 50 times forward earnings (according to analysts’ expectations), Chipotle’s valuation remains high, and that may be the biggest reason to ditch the restaurant stock right now — not a CEO change. I would argue that a correction in the stock price is overdue because the stock is trading at such a premium.

Chipotle stock may still be a good buy if you plan to hold for the long term (say, a few years), but I’d wait to see if there’s more of an investor trend that sends its price even lower. At a lower earnings multiple, there would be at least some potential margin of safety and not as much future growth in the stock’s valuation, making it more likely that investors could earn a high return.