3 Reasons Warren Buffett Should Buy Chipotle Shares and 1 Reason He May Regret It

Because of his fantastic track record, Warren Buffett is closely watched by much of the investment community. his conglomerate, Berkshire Hathawaycurrently owns many companies that investors can look to for ideas.

There is one business not on this list that operates in an industry that Buffett is familiar with. I’m talking about Chipotle Mexican Grill (CMG 0.81%)whose shares have risen 231% over the past five years.

Here are three compelling reasons why the Oracle of Omaha should buy this restaurant stock surrender the fist. There is also an obvious reason why he would regret this decision.

Chipotle’s brand

Look through Berkshire Hathaway’s portfolio and you’ll notice top positions such as Apple, American Expressand Coca cola. These industry-leading businesses all possess strong brands.

To be clear, Chipotle’s brand probably isn’t as strong as those businesses, but in the restaurant sector, it’s certainly highly regarded. Conformable Piper Sandlerspring of 2024 Assessment with adolescents survey, Chipotle is the third most popular restaurant among the Gen Z demographic, up from fourth just six months prior.

Chipotle’s monster success has spawned other fast-casual copycats that focus on different cuisines. And the brand’s relevance has led to tremendous growth, with the business currently operating 3,530 stores.

Focus on the customer

Companies that put customers and their needs first increase their chances of long-term success. For Chipotle, this is part of its DNA, as the business understands that quality, convenience and price are probably the three most important factors for consumers purchasing food at a restaurant.

In recent years, Chipotle has improved accessibility for customers with an increase in drive-thru locations. And with the help of its digital base and thriving loyalty program, ordering their favorite burritos or bowls is a seamless experience for hungry consumers.

Pricing Power

One of Warren Buffett’s favorite qualities in a business is its ability to raise prices with minimal pushback from customers. This is a clear indication of consumers’ ability and willingness to pay for what they likely perceive to be a unique offering.

There is no doubt that Apple and Coca-Cola have proven pricing power. Chipotle does the same. Over the past two years, at a time when inflationary pressures have been at the fore, the company has been able to successfully institute menu price increases.

It’s hard to deny that Chipotle offers a lot of value to the customer. Negative attention was drawn to complaints that portion sizes had become smaller. But a 2023 survey found that only 2 percent of consumers think Chipotle’s prices (for meals and service) are not at all reasonable.

There is room here to allow the business to occasionally raise prices. And for what is generally a lower price, you definitely get more food at Chipotle compared to other fast-casual chains like Cava and Sweetgreen.

Why Buffett Would Regret Buying Chipotle Stock

Warren Buffett loves great companies. And based on its success, Chipotle falls into that category. However, just because the Tex-Mex chain passes the quality screen doesn’t mean the stock should be purchased without hesitation.

The Oracle of Omaha prioritizes evaluation. If you pay too much for a business, it becomes more difficult to generate strong returns over time.

Even with the stock trading 19% off its high, Chipotle is still extremely expensive in my opinion. The stock is going for a price-to-earnings ratio of 55. That’s probably too rich for Buffett.