3 Reasons the Momentum Will Continue for Chipotle Stock
With so many businesses struggling due to the ongoing effects of the novel coronavirus, it’s almost a surprise to see that Chipotle Mexican Grill (NYSE:CMG) is doing better than ever. The shares did hit a low point in mid-March, but Chipotle stock has taken off over the past few months.
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In fact, the company has more than doubled its price since its March low, and recently surpassed $1,000 per share for the first time. There’s no doubt that Chipotle’s recovery has widely outpaced that of the broader market.
These gains make Chipotle one of only four restaurants to actually increase its valuation in 2020. And it’s only one of three restaurants that recovered all of its losses during the pandemic.
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Here are three reasons Chipotle’s momentum will continue in 2020.
1. Chipotle Never Shut Down Operations
One of the biggest advantages Chipotle has is that the company never had to entirely shut down its operations. The company did close in-store dining, but continued offering carryout and delivery orders.
This meant the company continued to generate revenue and stay profitable during the first quarter. Chipotle’s comps did fall, but the company noticed an improvement by April.
This meant company leadership could act strategically rather than scrambling to generate cash. And for that very reason, Wedbush analyst Nick Setyan reiterated his outperform rating and raised the price target from $870 to $1,200 per share.
Setyan said that Chipotle’s strong digital presence enables the company to take “a more conservative approach to opening dining rooms as solid off-premises sales trends allow management to further hone their dine-in operating procedures.”
2. Customer Loyalty Is Increasing
One interesting thing to note about Chipotle stock is that customer loyalty has skyrocketed since the pandemic first started. The company currently has 11.5 million members in its customer loyalty program, and daily signups are nearly quadrupling.
And Chipotle is already capitalizing on this surge in customer loyalty to maximize its long-term growth. The company is doing this by running personalized promotions in an effort to increase the volume and frequency of customer orders.
3. Chipotle Can Expand Its Store Base
And finally, Chipotle management is optimistic about its future growth. During its most recent earnings calls, CEO Brian Niccol stated that the company expects these strong gains to continue.
Niccol explained, “We believe this will have a lasting benefit well beyond the current crisis and are pleased to report that we have maintained strong momentum into April with the month-to-date digital mix running in the high 60s.”
According to Chipotle CFO Jack Hartung, the company is in a good position to rapidly expand its store base. He explained that right now, there is less competition and that rent will likely be lower in many parts of the country.
Hartung added, “We do think we’ll be able to get more sites, higher quality sites, more Chipotlanes, and I would expect rents should be at least incrementally more attractive.”
And Chipotle is in a good financial position to expand its store base. The company has always been very profitable, and its sales have rebounded nicely since the pandemic first hit.
Is Chipotle Stock a Buy?
Clearly, things are going well for Chipotle right now. But with the company’s shares up 41% from a year earlier, is Chipotle stock too expensive to buy? The best answer I can come up with is maybe.
The company’s valuation is at a record high, but there’s no doubt that market conditions could change very quickly. However, there is a lot of evidence to support Chipotle’s continued growth. But conservative investors may want to hold off and wait for a more attractive entry point.
Jamie Johnson is a personal finance freelance writer and has been writing for InvestorPlace since mid-2019. She writes for a number of other well-known financial sites, including Credit Karma, Quicken Loans, and Bankrate. As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.
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