Key Points
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Chipotle’s management team continues to believe that it can operate 7,000 restaurants in North America one day.
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Margins have come under pressure, but the company’s store-level profitability is still impressive.
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The market is offering the stock to investors at a price-to-earnings ratio that’s near a five-year low.
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Chipotle Mexican Grill (NYSE: CMG) used to be a fantastic investment. Its shares jumped 368% during the five-year stretch leading up to their peak in June 2024. They have now come down 47% from that all-time record (as of July 14), as the current macro environment pressures consumer spending behavior.
It’s time for investors to be patient and opportunistic, though. This consumer discretionary stock could double in five years. Store growth, strong profits, and a historically cheap valuation are the key variables investors must watch.
Management is focused on expansion
Chipotle continues to drive physical expansion. Recently, this has occurred with third-party development partnerships in newer geographies. There’s potential for hundreds of locations in the Middle East in the long run. Chipotle is opening its first store in Mexico this week. It’s also eyeing the Asian market, specifically South Korea and Singapore.
The business ended the first quarter with 4,090 company-operated restaurants, showcasing the significant scale it has built over the years. That figure is projected to grow by about 350 this year.
On the first-quarterearnings call CEO Scott Boatwright reiterated Chipotle’s belief that North America can support 7,000 stores in the long run. As Chipotle’s footprint keeps growing, the company is in a position to generate much higher revenue in the future.
Profitability can improve over time
During Q1, Chipotle posted an operating margin of 12.9%, which came down from the 16.7% registered in the year-ago period. Inflationary pressure for beef and freight was handled with menu price increases that were lower than those implemented in prior years. It also hasn’t helped that same-store sales were up just 0.5%.
The leadership team is also investing with an eye toward capturing greater efficiencies. This includes a new digital makeline display and using artificial intelligence to support employees.
On a restaurant-level basis, Chipotle’s Q1 operating margin of 23.3% was still superb, even though the company is dealing with a difficult macro environment. Assuming the backdrop eventually stabilizes and returns to what we saw prior to 2025, a higher revenue base, coupled with operational improvements, can result in stronger earnings power over time.
The current opportunity is attractive
The valuation is the third reason this stock can double in five years. Shares currently trade at a historically cheap multiple. The recent price-to-earnings ratio of 33.7 is near a five-year low, and it has become 32% cheaper just in the past 12 months, presenting a compelling entry point.
Investor patience will be put to the test. But Chipotle does have what it takes to double by July 2031.
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Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends the following options: short September 2026 $35 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
