The S&P500(SNPINDEX: ^GSPC) has been on an absolute tear since early last year, fueled by developments in artificial intelligence (AI), a recovering economy, uncontested elections and recent interest rate cuts by the Federal Reserve. After rising 24% in 2023, the broad index is up about 28% so far in 2024 (at time of writing). History suggests that the market run will likely continue into 2025.
The ongoing rally began on October 12, 2022, and while every bull market is different, history can be instructive. On average, bull markets last longer than five years. As we have just entered the third year of the current rally, there is a distinct possibility that the S&P 500 will continue to gain ground in 2025.
There’s more. Going back fifty years, the S&P 500 has generated profits 73% of the time. In years after back-to-back wins of more than 20%, the S&P has risen an average of 12%, indicating that the rally will continue.
Stock splits have seen a resurgence in recent years. This has prompted investors to take a fresh look at companies that initiate stock splits, as this move is usually the result of years of consistent revenue and profit growth. One such company is Chipotle(NYSE:CMG). Since its initial public offering in early 2006, the stock has returned 7,360%, leading to a massive 50-to-1 stock split earlier this year – the first in the company’s history.
Despite profits of that magnitude, there’s every reason to believe Chipotle’s growth story will continue into 2025. Read on to find out why.
Before Chipotle opened its first restaurant in 1993, the concept of fast-casual didn’t exist. By focusing on higher quality food delivered quickly, the company has changed that. Customers responded to Chipotle’s fresh ingredients and mantra of “food with integrity,” and the rest, as they say, is history.
Consistent growth has been one of the hallmarks of the company’s path to success, and there is every reason to believe this will continue. Chipotle is on track to achieve double-digit revenue and profit growth this year and open approximately 300 new locations, 80% of which will have a Chipotlane.
The aforementioned Chipotlane approach has boosted the company’s growth. By installing dedicated mobile order pickup lanes, Chipotle has boosted its digital strategy by engaging its highest-volume customers while reducing checkout congestion. This strategy has proven to be extremely successful and has increased sales and profit margins.
Chipotle has increasingly focused on mobile ordering, which has emerged as a key growth driver. The company surpassed 40 million rewards members earlier this year, who are often among Chipotle’s most trusted customers. As a result, digital order growth continues to outpace restaurant sales and accounted for 34% of food and beverage sales in the third quarter.
The company has been working on international expansion, with several dozen locations around the world. While Chipotle had more than 3,600 restaurants at the end of the third quarter, management is also targeting 7,000 locations in North America. Add to this the largely untapped international opportunities, and the potential for future growth becomes clear.
You only have to look at Chipotle’s financial results to see whether its various strategies are paying off. In the third quarter, Chipotle generated revenue of $2.8 billion, up 13% year over year, resulting in diluted earnings per share (EPS) of $0.28, up 22%. It is always a good sign when profits grow faster than sales, as this illustrates that the company has achieved the scale necessary to leverage its existing assets, ultimately increasing profitability.
Data per YCharts
The evidence suggests Chipotle still has a long road to growth, but some investors may be put off by the company’s high valuation. After all, the stock currently sells for 61 times earnings, compared to a multiple of 31 for the S&P 500. However, taking a step back can provide important perspective.
For the past decade, Chipotle’s average The price-to-earnings (P/E) ratio stands at roughly 83, as can be seen from the chart, well above the current level of 61, indicating that the stock historically cheap. It’s also worth noting that Chipotle has gained 404% over the same period, more than double the S&P 500’s 200% gain, illustrating why it deserves a premium.
All told, this shows why Chipotle is a buy heading into 2025.
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Danny Vena holds positions in Chipotle Mexican Grill. The Motley Fool holds positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends the following options: Short December 2024 put $54 on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
History says the S&P 500 will soar in 2025. 1 stock split share to buy before that happens. was originally published by The Motley Fool
