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About Chipotle

Well, this is a fun first!

If you have been reading our stock analysis articles for a while now, first of all, thank you very much, and second of all you probably already knew that we have done a deep dive stock analysis on prominent casual dining chain Chipotle Mexican Grill, better commonly known and referred to simply as Chipotle, and Chipotle just happens to also be the first company that we are performing an updated analysis on so as to see how are our initial rating measured up to its actual performance since the original publication, and, of course, we are going to walk you through some of the updated financial figures behind this growing chain as well.

What an exciting time, ain’t it?

For those who aren’t already familiar with Chipotle Mexican Grill, it isn’t exactly a fast-food chain (at least, in my opinion) but it isn’t exactly gourmet dining either, so let’s just stick to calling it casual dining then, but what it surely is a ginormous restaurant operator (all corporate owned, Newport Beach, California-headquartered Chipotle doesn’t (yet) franchise out its restaurants), with reportedly somewhere in the neighborhood of 3,400 Chipotle locations across the world, and this company is still growing its presence, albeit not at as exponential of a rate.

For those who aren’t as familiar with Chipotle Mexican Grill, it is essentially Subway but for well enjoyed Mexican dishes, such as burritos and bowls, allowing the consumer to essentially handpick each and every ingredient in real time, also, of course, maintaining partnerships with prominent and scaled third-party delivery apps such as DoorDash and Uber Eats, through these partnerships accelerating its growth through attracting both delivery drivers to pick up a customer’s food and deliver it to them or allowing end consumers to order ahead of time and save a little money by picking up the food themselves in a designated food delivery and pick-up area.

Just as importantly, the fast casual dining chain is also deploying artificial intelligence through its in-store operations, so as to enhance both the customer experience but also the experience and efficiency of its employees, which is surely a general positive in that the company is leaning into these related technologies, especially from the perspective of a potential shareholder in the company.

As an occasional consumer at my local Chipotle (there’s one a mile or so from where I reside and also one just across the street from my university’s campus), I’ve also noticed that the company is seemingly very good at passing along costs to its consumers, that is, in a few different contexts.

For instance, I personally love Chipotle’s food and portions (and others do as well), so much so that even though the cost of a chicken bowl and a small bag of tortilla chips has risen, I am still fairly inelastic (i.e., I don’t really change my order or purchasing habits or decisions as a result of price fluctuations, namely, price increases) and am ultimately willing to pay a bit more for the same quality and quantity of food.

In another sense, while certain restaurant chains might have well defined consumers in terms of race, demographic, age, financial means, among others, Chipotle’s dining audience is very, very diverse, which is an abundant positive for this lean, mean burrito making machine, as this restaurant chain’s food and overall brand resonates well with more affluent crowds as well as those that are maybe a little less financially equipped, which can certainly be attributed to the company’s stellar pricing, among other factors and variables, perhaps convenience and quality, to name a few.

While we have done a stock analysis article on Chipotle Mexican Grill (NYSE: CMG) in recent years, let’s get an updated glimpse on the company and where it is now financially and how it has been performing, so as to refresh our view(s) on the company financially, ultimately determining whether or not this company’s stock is worthy of the investable capital you have been given.

Chipotle’s stock financials

In getting our refresher of Chipotle started off, the company is currently trading at a share price of a whopping $2,419.28 (yes, that is indeed the cost of one single share) with an associated market capitalization of $66.4 billion, no annually issued dividend currently offered to its shareholders along with a prevailing price-to-earnings (P/E) ratio of 57.40.

In picking these initial pieces apart, Chipotle’s stock (NYSE: CMG) has certainly done quite well and generated an admirable return, say, if we had invested in the company’s shares during the era of our first publication on the company, however, there’s no time like the present and right now this company has no annually issued dividend, which is completely fine by us, as this is still a growth company and we would much rather the company’s executives put as much as cash and other financial resources behind growth rather than opening up an unnecessary cash drain from the company’s corporate boat.

Additionally, the company’s present price-to-earnings ratio is definitely telling me that if this company was not growing (primarily on the basis of recent annual revenues), it would be trading at a very lofty valuation, well into overvalued territory, and while under any normal circumstances the company’s share price can be viewed as trading on the higher end, consistent, recent annual growth can surely compensate investors and justify paying a bit of a premium for an ownership stake in a company such as this one.

This begs the question of whether or not this food firm is growing, and if so, at what sort of rate?

Let’s venture on and address and answer some of these pressing questions.

With respect to the company’s balance sheet, Chipotle’s executive team is at the helm of and responsible for approximately $7 billion in terms of total assets along with just about $4.6 billion in terms of total liabilities, which is nothing to scoff at as this company maintains a lot of real estate and yet has kept its balance sheet lean on the total assets side of things, allowing it to not only merely survive as a dominant player in the casual dining sector, but also affording itself the great ability to heavily invest and reinvest in internal growth initiatives and also continue expanding its real estate and overall operational portfolio, both stateside and outside of the United States, not to mention that it can also further dip its toes into artificial intelligence, specifically within the context of its kitchens, so as to cut out some costs while also defining a better, more efficient customer experience.

No, we are not proponents of robots taking over, but we are really just trying to point that this is a lean, mean balance sheet for a just as lean, mean chicken bowl flinging regime, not to mention that it must remain competitive with other chains that are already apparently making some noise and experimenting with robots and artificial intelligence within their kitchens, such as Sweetgreen, a more pricey and health-oriented Chipotle, really.

Moving right along to the condition of the company’s income statement, Chipotle’s annual revenues, specifically measuring since 2018, have been most definitely moving in the right direction, starting its recent cumulative annual revenue journey at almost $4.9 billion (2018), rising the following year to $5.6 billion in 2019, a hair under $6 billion in 2020, rising rather dramatically to $7.5 billion in 2021, leading all the way up towards its latest reported figure of $8.6 billion, as reported at the end of 2022.

Chipotle nearly doubled its revenues and through a multitude of other reasons (i.e., organic store growth, same store sales growth, mild and spicy price hikes, etc..), one of my favorite reasons is the fact that this company pivoted before pivoting was cool.

Namely, the company pretty much had every right to report a pretty harsh revenue decline in 2020, yet it grew its revenues through digital adoption through both internal initiatives and through partnering with third-party delivery platforms, such as DoorDash and Uber Eats.

This is fantastic and while in hindsight all of it makes complete sense, while being in the belly of the beast, this company pivoted when times were tough and put its resources to work in order to make this digital transformation happen, which is still most certainly benefiting the company today, and also likely will tomorrow and the next day(s).

From the perspective of the company’s cash flow statement, Chipotle’s net income (also between 2018 and 2022) has been growing at a brisk pace, as have its total cash from operations during the same time period, that is, for the most part, with a relative low of $622 million in terms of total cash from operations (2018) and a relative high of $1.3 billion, as reported in 2022, again, effectively doubling the total cash it extracts from its extensive and growing business operations.

Chipotle is growing in multiple realms in very, very impressive strides.

This company is exactly like a piece of angry pork from one of its restaurants; lean and mean.

Yeah, we know the whole “lean and mean” thing is becoming a bit repetitive, but come on, that was a prime opportunity.

Chipotle’s stock fundamentals

On the basis of profitability, specifically trailing twelve month (TTM) net profitability, Chipotle can hang with the best of them, no more, no less, as according to the figures displayed on TD Ameritrade’s platform, the company’s TTM net profit margin is set at 12.27% in comparison to the industry’s listed respective average of 12.81%, and given just how competitive the industry is and those it goes up against for the customer’s stewarded dollar, we are frankly just glad that this company remains essentially in lockstep with the competition, which can evidently be rather challenging given that one might be able to say that the company’s competitors include the likes of similar chains such as Qdoba, Del Taco, Taco Bell, and I might even be so bold as to zoom out a bit from the company’s direct competition and venture to say that some of its more broad competition includes McDonald’s and Domino’s, among other scaled restaurant players, even those that aren’t clumped into the Mexican food category. 

As it relates to Chipotle Mexican Grill’s core TTM returns on both assets and investment(s), it can also be found on TD Ameritrade’s platform that the company has done an excellent job at besting the industry in both of these respects, with the company’s TTM return on assets and investment(s) listed at 15.89% and 18.25% to the industry’s respective averages of 3.40% and 17.50%, with the brand and chain in question seemingly being more operationally efficient with the capital its been given, also historically doing a better job at planting down the right accretive investments as well.

Should you buy Chipotle stock?

I don’t really see any signs of a slow down for this company.

Sure, the consumer and their financial appetites will ebb and flow, however, as previously stated early on within this stock analysis article, Chipotle has seemingly struck a sweet spot in that it can certainly pass on some of its costs to consumers, but consumers, according to the company’s revenue figures (among others), have remained quite resilient and haven’t pushed all too hard back on these adjustments, continuing to put out excellent products for those it serves.

In summary, its balance sheet maintains a great posture, its revenues have been growing at a considerable year-over-year (YOY) rate, its cash flows have also been growing at a similar pace, its TTM net profit margin is quite competitive, and its core TTM return metrics look quite healthy with respect to the industry as well.

In wrapping up our first updated stock analysis article on a company that we have analyzed before, it makes the most sense to us to offer this company’s stock a “buy” rating, even in light of this company’s stock price (NYSE: CMG) being technically overvalued on a standalone price-to-earnings basis, as the growth is clearly there, and it has been, especially since our initial piece on Chipotle Mexican Grill, as between then and now the company’s shares are up about 75%.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.

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