Chipotle Mexican GrillIt is (NYSE:CMG) An extraordinary jump to the top of the food (or restaurant) chain has yielded thousands of percentage points in gains for loyal investors. Chipotle’s stock price has reached such a high level that it is undertaking a 50 to 1 split this week.
Stock splits often reflect management’s confidence in the stock price’s ability to rise further. Let’s take a look at where we can expect Chipotle to go in five years.
Much bigger
This fast-casual restaurant chain serves fresh, healthy Mexican-style dishes. He sources local produce and boasts that he only uses 53 ingredients (all of which you can pronounce) and that he doesn’t have a freezer on his premises – everything is prepared fresh, every day. He has created a model food preparation process that ensures meals meet his standards and please customers.
The chain offers a small menu so food can be prepared quickly and freshly, and management has a culture focused on innovation. This has given rise to popular new dishes and a focus on digital and delivery, bringing it into the omnichannel era.
All of this generates high customer adoption and retention rates, illustrated by consistently high revenue and income. same-store sales (comps) growth. Sales increased 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 an opportunity to expand further and is targeting suburban neighborhoods where many of its affluent consumers live.
Management believes it can double its 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 this rate, it should have about 5,000 within five years.
That in itself is a huge growth driver, and with Chipotle’s reliable sales growth, it’s a double push to increase total revenue. This also gives it more room to continue expanding in the coming years.
A strengthened international presence
Chipotle has a handful of restaurants outside of North America, but it is expanding globally. Its 68 stores in the UK, Germany and France are all company-owned and it recently signed its first ever franchise deal for restaurants in the Middle East.
This could be an interesting and lucrative move for Chipotle, and the company is clearly taking a long time. It hadn’t entered a new country in 10 years before signing the franchise agreement, with its first store opening in Kuwait. It also hasn’t expanded significantly in the three European countries where it operates. However, management has said this will accelerate openings both in North America and internationally.
As the chain continues to grow rapidly on its home turf, it makes sense to put a major international expansion project on hold. In five years, it’s expected to have a broader presence in new countries outside of North America and potentially in more franchise stores, which is a whole new kettle of fish. But it’s a high-margin business and could add a lot to the company as a whole.
A higher stock price
Chipotle stock is up nearly 300% over the past five years, and if you track its revenue and earnings growth, you’ll see why.
If it can maintain its strong growth and high margins, it could likely accomplish this feat again within the next five years.
Chipotle shares trade at a high price-to-earnings multiple, near 69, reflecting strong growth. If growth slows, the stock won’t be able to maintain such a premium valuation and its price won’t rise as quickly. But even if that happens, investors will still enjoy market-beating gains.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool posts and recommends Chipotle Mexican Grill. The Mad Motley has a disclosure policy.
Where will Chipotle Mexican Grill be in 5 years? was originally published by The Motley Fool
