Should You Buy Chipotle Stock Hand Over Fist in February?

Despite reporting what I thought were very solid results, Chipotle Mexican Grill (NYSE: CMG) shares were under pressure the day following its fourth-quarter 2024 financial update. That still doesn't take away from the fact that this top restaurant stock has soared 233% in the past five years (as of Feb. 7).

Chipotle continues to operate at an extremely high level, standing out from industry peers. Should you buy the stock hand over fist in February?

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Ending 2024 on a high note

During the three-month period that ended Dec. 31, 2024, Chipotle increased revenue 13.1% year over year to $2.8 billion. That capped off another year that saw the burrito purveyor post a double-digit top-line gain. That last time Chipotle reported sales growth of less than 10% was in 2020. The impressive streak continues.

After Chipotle opened 119 new company-owned locations in Q4, it now has 3,726 stores in total. Besides expanding the physical footprint, Chipotle's same-store sales (SSS) were up 5.4% in Q4. That disappointed Wall Street, but it was still healthy. The business has a wonderful track record of boosting SSS that's the envy of the restaurant sector.

Traffic at stores remains robust, as transaction counts increased 4%. This is in stark contrast to the challenges the rest of the industry is facing. The leadership team expects SSS to grow low to mid-single digits in 2025.

Satisfying hungry investors

Chipotle continues to prove just how great of a business it is. This is clearly evident when you understand that it has proven pricing power.

In the past few years, inflationary pressures have been a major concern. For Chipotle, this means higher costs for key inputs, like certain proteins, avocados, and packaging products. Management has been able to successfully navigate this headwind my raising menu prices on numerous occasions, with no impact on the revenue growth trajectory.

There's also a lot of growth on tap. Executives reiterated a long-term target of 7,000 stores in North America. Add this to a goal of getting to $4 million in average annual store sales volume, and there's a $28 billion opportunity on the table. This doesn't include the business further penetrating international markets or finding ways to raise store-level volume.

Chipotle's profitability is hard to overstate. Excluding corporate overhead, each store boasts a 24.8% operating margin. This helps the overall company generate a mid- to high-teens operating margin. That financial fortitude provides management with the resources it needs to keep investing in growth while also repurchasing outstanding shares to the benefit of investors.

Wait to take a bite

This stock has been a major winner in the past few years. The leadership team deserves credit for flawless execution to continue growing the store base in a profitable manner.

The market has taken notice, bidding up the shares. As of this writing, the stock trades at a price-to-earnings (P/E) ratio of 51.4. Given that the S&P 500 index trades at a P/E multiple of 25.5, it's reasonable to believe that the market prices Chipotle at a steep valuation.

On the one hand, this might be justified. In the past five years, diluted earnings per share (EPS) soared at a compound annual rate of 35%. In fact, that unbelievable bottom-line gain offset the P/E ratio's 26% decline during that same time. The stock is actually cheaper than it was in February 2020.

But according to consensus analyst estimates, EPS is projected to increase at an 18.4% annualized clip over the next three years. Not only is that a much slower pace than what was achieved in the recent past, but the current valuation means investors are betting on the business to keep exceeding Wall Street's expectations.

This is a great company. However, investors should wait to buy shares.

Should you invest $1,000 in Chipotle Mexican Grill right now?

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Neil Patel and his clients have 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 March 2025 $58 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.