3 Reasons to Buy Chipotle Mexican Grill Like There’s No Tomorrow

Chipotle Mexican Grill (CMG -1.28%) has become one of the most prominent fast-casual restaurant brands in the world. But all companies, however well-liked by consumers, go through good times and bad. With Chipotle shares down about 15% from their 52-week high, long-term growth investors may want to stick around. And, yes, there are some downsides to understand before you do.

Here are three reasons to buy Chipotle while the stock is underperforming.

1. Chipotle isn’t done growing up

Chipotle is not a small restaurant concept, with approximately 3,500 locations globally. The big growth years are certainly behind us, so in some ways investors have missed what could be the most exciting phase of the expansion. But that doesn’t mean Chipotle is done growing. In the second quarter of 2024, the company opened 52 new locations, which represents an annual run rate of approximately 200 openings per year. Clearly, growth is still on the cards.

Image source: Getty Images.

Meanwhile, a quick comparison will help give some dimension to the upward trajectory. Competitor Taco Bell, which is owned by Huh! trademarks (NYSE: YUM)operates approximately 8,500 Mexican-themed restaurants. If Chipotle opens 200 locations a year, it will take more than a decade of growth to catch up with Taco Bell.

Notably, growth doesn’t come at the expense of performance. Same-store sales reached a very impressive 11% in the second quarter of 2024. That’s probably not a sustainable number, but even half of that would still represent a very strong performance in the restaurant industry, where the store with a single digit has a low digit. sales growth is usually considered quite good. All in all, it looks like there’s plenty of growth ahead for Chipotle.

CMG data by YCharts

2. CEO departure isn’t the end of the world for Chipotle

Investors have a habit of overreacting to news. So when Chipotle’s highly regarded CEO Brian Niccol suddenly announced he was leaving to run for Starbucks (NASDAQ: SBUX)investors were worried and dumped Chipotle’s stock. Fair enough, given that the company will need to find a replacement, and until it does there could be some uncertainty in the business outlook.

Only Niccol did not operate in a vacuum. He had a team around him, and that team stays behind to run Chipotle. In fact, a company veteran who recently announced plans to retire has agreed to stay on for a bit to help the company continue. There is no reason to believe that Chipotle will fall out of bed because one person left, even if that person was the CEO. If you’re a long-term growth investor, the negative sentiment here is likely a buying opportunity.

3. Price drops are a normal part of Chipotle’s upward trajectory

Growth stocks don’t just keep going higher and higher. They tend to follow a jagged upward path. Chipotle is no different. If you look at the price chart below, you can see that big price drops are pretty normal for Chipotle.

CMG data by YCharts

The recent decline of about 15% has left the stock about 15% below its all-time high. Rapid price declines have historically been chances to buy Chipotle. To be fair, there’s no telling how deep the decline might go. The stock has dropped 50% or more several times. But unless you take a contrarian stance, acting while Wall Street worries, you may never buy Chipotle.

In other words, don’t miss a Chipotle retreat. The growth story is still strong, and the big negative news is probably overblown. If you are concerned about a deeper decline, initiate an opening position and add more if the stock continues to decline.

Chipotle: Strike while the iron is hot

There are no crystal balls on Wall Street, so it’s impossible to know whether the current weakness in Chipotle stock is a sign of longer-term trouble or just a blip in what has been a long journey to higher prices. But if you dig into the backstory here, it seems very likely that the blip theory is more likely. If it seems reasonable to you, don’t miss it. At least buy an early position in Chipotle stock today, because you may not have the same chance to do so tomorrow.