Chipotle Mexican Grill‘S (NYSE: CMG) The extraordinary leap to the top of the food (or restaurant) chain has earned loyal investors thousands of percentage points of profit. Chipotle’s stock price has soared that it is undertaking a 50-for-1 split this week.
Stock splits often reflect management’s confidence that the stock price can rise even further. Let’s take a look at what we can expect from Chipotle in five years.
Much bigger
This chain of fast-casual restaurants serves fresh, healthy Mexican-style food. The company uses local produce and claims it uses only 53 ingredients (all of which you can pronounce) and has no freezers on site; everything is made fresh every day. It has created a model food preparation process that ensures that meals meet standards and satisfy customers.
The chain has a low number of menu items so food can be prepared quickly and freshly and the management has an innovation-driven culture. That has resulted in a number of popular new dishes and a focus on digital and delivery, moving it into the omnichannel era.
All of this drives high customer acceptance and retention rates, exemplified by consistently strong revenue and comparable store sales growth (comps). Revenue rose 14% year over year in the first quarter of 2024, including a 7% increase in comps.
The concept is so popular that Chipotle is expanding into new regions to meet high demand. Despite its widespread presence in many urban areas, it sees the opportunity to expand further and is focusing on the suburbs where many of its affluent consumers live.
Management believes it can double the number of stores from the 3,500 it currently has to 7,000 in North America alone. It plans to open about 300 stores this year, and at that rate it should have about 5,000 in five years.
That in itself is a huge growth driver, and with Chipotle’s reliable growth, it’s a double boost to increasing overall revenue. It also still gives the company more room to continue expanding in the coming years.
A stronger international presence
Chipotle has a handful of restaurants outside North America but is expanding globally. Its 68 stores in the UK, Germany and France are all owned by the company and it recently signed its first-ever restaurant franchise agreement in the Middle East.
This could be an interesting and lucrative change for Chipotle, and the company is clearly doing it very slowly. It had not entered a new country for a decade before signing the franchise agreement, with its first store opening in Kuwait. It has also not expanded extensively in the three European countries where it operates. However, management said it will accelerate openings both in North America and internationally.
Although the chain is still growing rapidly on its own territory, it makes sense to wait with a major international expansion plan. In five years, it should have a broader presence in new countries outside North America and possibly more franchise stores, which is a whole new breed of fish. But they are high margin businesses and can add a lot to the business as a whole.
A higher stock price
Chipotle stock is up nearly 300% over the past five years, and when you chart its sales and profit growth, you’ll understand why.
If it can sustain its high growth and wide margins, it may be able to achieve this feat again in the next five years.
Chipotle’s stock trades at a high price-to-earnings ratio of nearly 69, implying strong growth. If growth slows, the stock won’t be able to sustain such a premium valuation, and the price won’t rise as quickly. But even if that happens, investors will likely still benefit from market gains.
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Jennifer Saibil has no positions in any of the stocks mentioned. The Motley Fool holds positions in and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
Where will Chipotle Mexican Grill be in 5 years? was originally published by The Motley Fool
