1 Growth Stock Down 15% to Buy Right Now

Chipotle Mexican Grillhis (CMG 0.49%) The stock closed at a record high of $68.55 on June 18. This huge 15,480% gain from its adjusted IPO price of $0.44 in 2006 would have turned a $1,000 investment into $155,800.

But over the past three and a half months, Chipotle’s stock price has fallen 15% from its all-time high. It might seem like a shallow pullback compared to past gains, but it could be a great buying opportunity for three simple reasons.

Image source: Getty Images.

1. Chipotle’s business is still growing rapidly

Chipotle initially carved out a growing niche between cheaper fast-food chains and more expensive full-service restaurants with its “fast casual” restaurants. However, after several years of robust growth, its comparable restaurant sales nearly fell in 2015 and declined in 2016 and 2017. This sharp deceleration was caused by tougher competition, sluggish growth of its mobile app and more many highly publicized foodborne illness outbreaks over a relatively short period of time at several Chipotle restaurants.

Under Brian Niccol, who took over as CEO in 2018, Chipotle has reversed that three-year decline by revamping its mobile app, expanding its rewards program and adding new ordering options. By collecting more data about its customers with its analytics tools, Chipotle has optimized its menu and launched more effective marketing campaigns. It also halted its deep discounts and promotions — originally aimed at winning back customers after the foodborne illness outbreak — and poured money into fresh television, social media and digital advertising campaigns.

As a result, Chipotle’s price growth has remained positive over the past six years, and it has consistently opened new restaurants, expanding its operating margins at the restaurant level. It has also offset the inflationary headwinds of the past two years by repeatedly raising prices and opening new Chipotlanes to serve more customers.

Data source: Chipotle.

From 2023 to 2026, analysts expect Chipotle’s revenue to grow at a compound annual growth rate (CAGR) of 14% as its EPS grows at a CAGR of 21%. That still makes it one of the fastest growing restaurant chains in the world.

2. Chipotle can survive the loss of its star CEO

Chipotle suffered a major setback in August when Brian Niccol unexpectedly resigned to join Starbucks as its new CEO. Chipotle’s stock tumbled amid fears its growth would once again stall without Niccol at the helm.

But Niccol was succeeded by Scott Boatwright, Chipotle’s chief operating officer since 2017, as interim CEO. Boatwright has implemented most of the bold turnaround strategies that have ignited Chipotle’s business in recent years, and the company said it will “continue to execute” on that “strategic plan without interruption.”

Chipotle CFO Jack Hartung, who had planned to retire next year, also plans to stay on board “indefinitely” to help Boatwright transition to the CEO role. In other words, Chipotle should maintain its momentum for the foreseeable future if it maintains its current growth strategies — and investors shouldn’t overreact to the sudden departure of its star CEO.

3. Macro headwinds against Chipotle are dissipating

Several macroeconomic headwinds have hampered Chipotle’s stock over the past year. Inflation has driven up food and labor costs, and it will likely run out of room to raise its prices to offset this pressure. Rising interest rates, which are needed to tame inflation, have also driven investors away from more expensive growth stocks like Chipotle.

But looking ahead, inflation is easing and the Federal Reserve just cut rates for the first time in more than four years. Therefore, investors should see much less macro-driven pressure on Chipotle’s margins and valuations. Its stock still isn’t a bargain at 44 times next year’s earnings, but its robust growth rates could justify that higher valuation.

It’s still a great growth stock for long-term investors

Chipotle’s stock may remain somewhat volatile until a permanent CEO is chosen, but it has a bright future. Its businesses are growing, its margins are healthy and it is targeting 8%-10% annual expansion in new stores for the “foreseeable future” as it expands overseas in Europe and the Middle East. So if you believe in its long-term growth potential, it’s a great time to pick up some more shares.