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A Tasty Time to Review Chipotle

We think Chipotle Mexican Grill (CMG) is in the early- to mid-stages of a great turnaround story that should play out for a while longer, suggests Mike Cintolo, growth stock specialist and editor of Cabot Top Ten Trader.

The biggest issue, of course, is quality, as the company leaves behind the food poisoning scares of the past and replaces them with perceptions of clean, healthy, delicious food.

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But more than that are some company-specific initiatives, the biggest of which is management’s emphasis on digital sales; not only does the company have a delivery pact with DoorDash (sort of a mini-Grubhub), but the firm has upgraded its app and online ordering process and put fast digital pickup areas in most stores; customers who order online can walk in, grab their food and quickly check out without waiting in the burrito line.

All told, digital sales nearly doubled in Q2 and make up 18% of all revenues. The company is also expanding the menu, with its most recent addition being a Carne Asada meat option, while it’s experimenting with new ovens for quesadillas and even nachos and dessert!

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Most of all, though, the top brass is executing to a T, leading to steadily accelerating revenue growth in recent quarters and surging earnings—and yet there’s plenty of upside likely left, as Chipotle’s sales per square foot are still 20% below their peak from a few years ago despite the uptick in digital revenue.

Analysts see earnings up 30% next year, though we think that could prove conservative.The stock has basically been meandering sideways. We’re OK starting a position here and averaging up on further strength, or if you want to be safer, wait for a decisive breakout above $850.

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