Could Chipotle Make You a Millionaire?

Chipotle Mexican Grill (CMG 0.72%) it is a market beating stock. The stock is up 248% over the past five years, a yield-crushing gain S&P 500 index. And since its initial public offering (IPO) in 2006, the stock has risen 6,450% and is certainly making early investors rich.

Maybe this top thing restaurant stockcurrently trading at 16% below peak price, help you become a millionaire in the future? Here’s what investors need to know.

Chipotle is a high quality business

In the hyper-competitive restaurant sector, Chipotle has carved out a successful niche in the fast-casual corner of the market. It has thrived in recent years and there is no reason to believe that success will end anytime soon. Yes, former star CEO Brian Niccol is gone, but this business still has key members of the leadership team, such as interim CEO Scott Boatwright and Chief Strategy Officer and former CFO Jack Hartung, who can keep operations running smoothly in future.

Growth has been fantastic in the past. Revenue in the second quarter of 2024 (ended June 30) totaled $3 billion, which was 114% higher than the same period five years earlier. The business is expanding due to a combination of impressive same-store sales growth from more transactions and higher-average tickets, as well as new store openings. Chipotle plans to open 300 net-new locations this year. And it just opened its first restaurant in Dubai, indicating management’s focus on breaking into new markets.

But there is still huge potential here at home. The management team believes Chipotle can one day operates 7,000 restaurants in North America. This is double the current footprint. It makes sense to open new stores quickly, given that the average location generates more than $3.1 million in annual sales, a figure that continues to grow steadily, and boasts a restaurant-wide operating margin of 28.9%.

One can easily argue that Chipotle has built an economic moat with it brand presence. We’ve already discussed the company’s strong same-store sales earnings as well as restaurant-wide sales and profit metrics. A clear indicator of brand strength comes from Chipotle’s ability to successfully raise its menu prices over the past two years to offset inflationary pressures. Consumers still flocked to the restaurant’s locations to buy burritos, bowls and tacos.

The company’s successful digital platform and loyalty program also help increase brand visibility. Additionally, it provides executives with a valuable channel to accumulate data that can inform menu innovations and marketing strategies.

The high expectations of the market

Chipotle is a high-quality business, so there’s no question that it should at least be on investors’ watch lists, especially those who care about owning businesses with economic moats. However, valuation is a critical variable that can have a large impact on a stock’s return potential.

Chipotle isn’t cheap, even in the current downturn. Shares are traded at a price-earnings ratio Ratio (P/E) of 56.5. That’s 134% more expensive than the S&P 500. Right now, the Tex-Mex chain’s valuation is even higher than the booming artificial intelligence (AI) stock. Nvidiawhich sells for a P/E multiple of 55.8. I’m not sure this is justified even if we take into account the favorable features mentioned above.

Chipotle has been a great stock to own in the past. But I’m not so sure he can be a millionaire looking to the next decade and beyond. Market expectations remain skyrocketing, and this introduces a potential headwind to achieving outsized returns for your portfolio. Unless the valuation drops significantly, I think the stock should remain on the watch list for now.