2 Reasons to Add Chipotle Stock to Your Radar

Everything was going well for Chipotle Mexican Grill (CMG 0.90%). The company was growing at a decent rate, profits were strong, and its stock price had more than tripled in the past five years.

Just when investors expected the restaurant to maintain its strong track record, CEO Brian Niccol announced his departure to join. starbucks. Niccol has been instrumental to Chipotle’s outperformance since joining in 2018, so investors were worried about the company’s future without its star CEO.

While nobody likes uncertainty, there are still good reasons to like the company, so much so that I’ve added it to my watchlist.

Image source: Getty Images.

Chipotle has a strong track record of execution

Chipotle has delivered solid numbers over the past five years, growing revenue and profit by 103% and 596%, respectively. These numbers are impressive, considering that the company is a restaurant operator rather than a high-tech company.

It’s even more remarkable when we consider that the company faced a massive food scandal less than a decade ago that led to huge financial losses, a tarnished reputation, and the departure of many top executives (and the resignation of the founder and then general manager). Steve Ells to Executive Chairman). To put that in perspective, revenue and net profit were $4.5 billion and $476 million in 2015, but fell to $3.9 billion and $23 million in 2016 due to the scandal foods

But under Niccol and the team he built after taking the helm, Chipotle has gotten stronger. In just a few years, Chipotle launched its digital ordering and pickup service, opened new stores, grew its same-store sales and improved the operational efficiency of the business. Operationally, Chipotle had 3,371 restaurants in the United States and another 66 overseas in 2023, compared to 2,452 and 37 stores, respectively, in 2018. In addition, average restaurant sales grew from $2 million in 2018 to $3 million by 2023.

Most will credit Niccol with his leadership, but it’s important to remember that the restaurant business is tough and requires a lot of execution at all levels, especially at ground level. Without the support of his management team and the dedication of the restaurant people, no CEO can turn the business around on his own, let alone deliver industry-leading performance.

In other words, while there are good reasons to be concerned about Niccol leaving to join Starbucks, I’m cautiously optimistic that he’s likely left behind a strong team and legacy that could continue after his departure. For example, interim CEO Scott Boatwright has been COO since 2017, and longtime company veteran Jack Hartung has decided to postpone his retirement “indefinitely” to ensure a smooth transition.

Chipotle can continue to grow in the coming years

Chipotle’s solid growth over the past few years might have made it a huge company, but it still has plenty of levers to pull to keep its growth machine turning.

The most obvious way is to keep opening restaurants in the US, growing its store count from 3,371 to its goal of 7,000 in the next decade. For perspective, there are around 45,000 McDonald’s restaurants worldwide (about 15,000 in the US alone), suggesting that Chipotle is far from saturating its core market.

Moreover, even if it has fully capitalized on the opportunity in the US, Chipotle still has ample room to grow globally, given its low store count of less than 100. Beyond that, Chipotle can also increase its sales in the same store encouraging customers to visit it. the store more often and increasing customer spend per visit. Therefore, it must continue to delight its customers by adding new items to its menu, experimenting with new digital initiatives and offering better rewards through its loyalty system.

Ultimately, there’s still a lot of work the company can do to grow in the coming years (if not decades).

What it means for investors

Chipotle has performed well in recent years, delivering remarkable revenue and profitability growth.

Although it is no longer small, it still has the ingredients to grow in the coming years as it continues to open new stores, enter new markets and increase revenue from existing stores.

Still, the sudden departure of its previous CEO left investors with a big question mark over whether the restaurant operator can continue to deliver in the future. Therefore, investors should closely monitor Chipotle’s performance in the coming quarters to get a sense of how this may affect the company’s bottom line.