The restaurant industry is definitely one of the most competitive markets out there. However, there are some companies that have managed to stand out from the crowd. This can provide investors with potential ideas to consider.
Two top names in the industry that are probably already on your radar Chipotle Mexican Grill (NYSE: CMG) And Starbucks (NASDAQ:SBUX). Although one is doing well and the other is facing some problems, they both have strong investment advantages.
Which of these leads restaurant supplies is the better investment right now?
The booming Tex-Mex chain
For starters, Chipotle’s resilience in a time of disruptive developments is a compelling reason to consider buying the stock. Over the past four and a half years we have had a global pandemic, supply chain issues, inflationary pressures and rising interest rates. All these challenges made things difficult for companies.
But during this volatile period, this company achieved strong revenue and profit growth without missing a beat. With the Federal Reserve beginning to move on a more favorable monetary path, it’s hard to imagine a short-term scenario in which Chipotle doesn’t continue to thrive. This should give investors peace of mind.
Chipotle has managed to grow its sales at a double-digit pace like clockwork. But it’s still looking at a big growth opportunity, which is another reason to like the stock.
There are currently 3,530 Chipotle locations. However, executives believe that figure, especially in North America, could one day reach 7,000. Expanding the physical footprint, coupled with steadily increasing annual sales volume at the store level, means that in the long term, Chipotle’s revenue potential is significantly greater than current levels.
It’s also hard to ignore the company’s excellent profitability. Chipotles operating margin increased from 17.2% in the second quarter of 2023 to 19.7% in the last quarter, driven by cost pressures and proven pricing power. It’s easy to believe that as sales continue to expand, operating income will increase.
Wall Street’s analyst community believes Chipotle’s earnings per share will grow 19.9% from 2023 to 2026. That profit potential can also attract investors.
The struggling coffeehouse giant
Starbucks is not performing as well as Chipotle. The coffee chain’s revenue has declined over the past two fiscal quarters. This is where the new CEO, Brian Niccol, can make a positive difference. He is credited with turning around Chipotle after the health problems several years ago, which he is focusing on improving Starbucks’ operations in the USwhere transactions fell by 6% last quarter. Moreover, he believes in the power of the brand.
It is important to invest in companies with a top CEO at the helm. Starbucks now has one of the best leaders in the restaurant industry working to improve the situation. This is another reason to consider owning the stock.
Investors might be discouraged by Starbucks’ current situation as it is clearly going through a rough patch. But this is exactly what creates the opportunities for potential investors. Chipotle may be firing on all cylinders, but expectations remain high.
The Tex-Mex chain’s shares trade at a price-to-earnings (P/E) ratio of 57. In my opinion, buying the company today does not seem like a wise move as a high valuation reduces the margin of safety and creates headwinds in achieving sufficient returns.
On the other hand, Starbucks shares, now trading 24% below their all-time high, a milestone reached in July 2021, can be bought for a more reasonable price-to-earnings ratio of 27. Considering that the company’s earnings have fallen Although recent quarters have taken a hit, the current price/earnings ratio is now artificially high. With Starbucks hopefully returning to growth and restoring its financial position sooner or later, the valuation will look more attractive.
There’s no question that Chipotle appears to be the better company. But in my opinion, Starbucks is the better stock of the two to buy.
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Neil Patel and his clients have no positions in the stocks mentioned. The Motley Fool holds and recommends positions in Chipotle Mexican Grill and Starbucks. The Motley Fool recommends the following options: Short September 2024 put $52 on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
Best Stocks to Buy Now: Chipotle vs. Starbucks was originally published by The Motley Fool
