Key Takeaways:
- The 2-Minute Valuation Model values CMG stock at $64 per share in 2 years, but analysts have a price target of $58 per share.
- That’s a potential 25% upside from today’s price of $51 per share, which would signify about 12% annual returns over the next two years.
- Chipotle is projected to grow EPS by 52% over the next 3 years with consistent double-digit growth.
- CMG stock trades at a discount to its historical valuation despite strong execution.
- Get accurate financial data on over 100,000 global stocks for free on TIKR >>>
Chipotle Mexican Grill (CMG) has established itself as a leader in the fast-casual restaurant industry. With over 3,500 restaurants across the United States, Canada, and Europe, Chipotle continues to expand its footprint while maintaining strong unit economics and customer loyalty.
With CMG stock now trading at $51 per share, following the company’s 50-for-1 stock split, investors are questioning whether this restaurant powerhouse offers an attractive investment opportunity.
Despite Chipotle’s impressive operational execution and growth trajectory, the stock trades at a discount to its historical valuation.
Let’s analyze whether this valuation gap creates a compelling entry point.
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What is the 2-Minute Valuation Model?
Three core factors drive a stock’s long-term value:
- Revenue Growth: How big the business becomes.
- Margins: How much the business earns in profit.
- Multiple: How much investors are willing to pay for a business’s earnings.
Our 2-Minute Valuation Model uses a simple formula to value stocks:
Expected Normalized EPS * Forward P/E ratio = Expected Share Price
Revenue growth and margins drive a company’s long-term normalized earnings-per-share (EPS), and investors can use a stock’s long-term average P/E multiple to get an idea of how the market values a company.
Why Chipotle Stock Looks Undervalued
Forecast
Based on analyst estimates in the EPS chart below, Chipotle is expected to deliver steady earnings growth over the next two years.
EPS is projected to expand from $1.12 in 2024 to $1.70 by 2027. This represents a 52% increase, with the company expected to reach 18% annual EPS growth after slower growth in 2025.
This earnings growth for Chipotle stock is likely to be driven by:
- Unit expansion: Chipotle continues to open new restaurants at a rapid pace, with management targeting 7,000+ locations long-term, representing a massive whitespace opportunity for the restaurant giant.
- Digital sales growth: The company’s investments in digital ordering, delivery, and the Chipotle Rewards loyalty program continue to drive incremental sales and improved customer frequency.
- Menu innovation: Strategic limited-time offerings and menu additions attract new customers and increase visit frequency among existing customers.
- Operational efficiency: Investments in technology and kitchen design improvements have enhanced throughput capacity, particularly during peak hours, increasing revenue potential per restaurant.
- International expansion: Early success in global markets provides a long-term growth avenue for Chipotle.
For our valuation, we’ll estimate that CMG stock will reach $1.60 in EPS in 2027.
Check out Chipotle’s full analyst estimates (It’s free) >>>
Valuation Multiple
Chipotle stock trades today at around 41x forward earnings, which is below its 10-year historical average P/E of 50x, as shown in the valuation chart.
That’s one of the lowest valuations Chipotle has seen in recent years, offering a potential value opportunity in a high-quality business.
For our valuation, we’ll use a conservative forward P/E multiple of 40x. This is below the company’s historical average but still acknowledges its improved growth profile.
High-quality companies often trade at a P/E multiple that’s about 2x their annual earnings growth. If earnings growth rebounds to over 20% annually by 2026, it’s reasonable to think the stock could return to its historical average P/E of over 45x, rather than the 40x multiple we’ll use in our valuation.
Fair Value of CMG Stock
Using our 2-Minute Valuation Model and applying a conservative approach:
- Conservative 2027 EPS estimate: $1.60
- Conservative forward P/E multiple: 40x
Expected Normalized EPS ($1.60) * Forward P/E ratio (40x) = Expected Share Price ($64)
The 2-year expected CMG stock price we would get from this valuation is $64 per share.
With Chipotle stock currently trading at around $51 per share, this implies a potential upside of 25% over the next two years or a 12% annualized return.
A 12% annual return might not sound exciting, but CMG stock could potentially deliver higher returns.
Remember, this is just a valuation exercise, and we don’t know for sure what the stock’s price will be in the future.
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What is the Average Analyst Price Target for Chipotle’s Stock?
Wall Street analysts believe Chipotle is undervalued at today’s price.
The average price target for CMG stock is around $58 per share, suggesting about 12% upside from its current share price:
Risks to Consider
Despite the bullish outlook, investors should be aware of several risks that could impact the restaurant giant’s growth trajectory:
- Labor costs and availability: Increasing wages and challenges in restaurant staffing could pressure margins.
- Food inflation: Rising ingredient costs could impact profitability or necessitate menu price increases that might affect customer traffic.
- Competitive pressure: The fast-casual dining segment continues to see new entrants and innovation from existing competitors.
- Economic sensitivity: A consumer spending slowdown could impact restaurant traffic and average check size.
- Growth saturation: Maintaining historical growth rates could become more challenging as the company matures in core markets.
TIKR Takeaway
Chipotle presents a compelling investment opportunity at its current valuation for growth-oriented investors.
Chipotle has demonstrated an ability to effectively navigate challenges, from food safety concerns in the past to the recent pandemic, emerging stronger each time.
Its strong balance sheet, with minimal debt and substantial cash reserves, provides financial flexibility to fund growth initiatives while offering downside protection.
The projected 25% return over two years reflects earnings growth and potential for modest multiple expansion as the market recognizes Chipotle’s consistent execution.
Chipotle’s current levels provide an attractive risk-reward proposition for investors seeking exposure to consumer discretionary spending at a reasonable valuation.
As unit growth continues and operational initiatives drive same-store sales and margin improvements, Chipotle appears well-positioned to deliver on its earnings growth projections, potentially providing returns that exceed our base case if multiple expansion materializes.
Is CMG stock a buy for contrarian value investors? Use TIKR to check the stock’s analyst price targets and growth forecasts to see if it is undervalued today.
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Disclaimer:
Please note that the articles on TIKR are not intended to serve as investment or financial advice from TIKR or our content team, nor are they recommendations to buy or sell any stocks. We create our content based on TIKR Terminal’s investment data and analysts’ estimates. Our analysis might not include recent company news or important updates. TIKR has no position in any stocks mentioned. Thank you for reading, and happy investing!
