Shares of Chipotle Mexican Grill, Inc. CMG have gained 40.3% in the past year, outperforming the 9.7% rise in the Zacks Retail - Restaurants industry. The stock has also surpassed the S&P 500 index and the broader Retail-Wholesale sector’s rallies of 31.1% each during the same period.

The company is leveraging five priorities to enhance operational performance and customer engagement. The company is driving improvements in productivity by implementing advancements in technology and innovation across restaurants, support centers, and the supply chain. It is also expanding accessibility through accelerated restaurant openings in North America and internationally.

The CMG stock has outperformed some other industry players in the past year, including BJ's Restaurants, Inc. BJRI, Yum China Holdings, Inc. YUMC and Darden Restaurants, Inc. DRI. During the said time frame, shares of BJRI, YUMC and DRI have rallied 22.6%, 7.1% and 11.8%, respectively.

CMG’s Past-Year Price Performance

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CMG Stock Trading Above 50 & 200-Day SMA

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Technical indicators suggest a continued strong performance for Chipotle. From the graphical representation given below, it can be observed that the CMG stock is trading above both the 50-day simple moving average (SMA) and 200-day SMA, signaling a bullish trend. The technical strength underscores positive market sentiment and confidence in CMG’s financial health and prospects.

Factors Aiding CMG Stock

Optimizing Throughput to Meet Growing Demand: The company is focused on improving throughput as a key driver of its operational performance. These efforts are instrumental in meeting the growing demand for its services while maintaining a high-quality guest experience and efficient restaurant operations.

Chipotle has been optimizing the expo position — a key factor in improving throughput by enhancing the order assembly and payment processes. During peak times in August, the company began deploying the manager on duty to the expo position. This adjustment has increased the percentage of restaurants with an expo in place to more than 60% in third-quarter 2024, up from just more than 50% last quarter.

With a 3.3% increase in transaction comps and a 2.7% rise in average check size in the third quarter of 2024, Chipotle’s focus on optimizing the expo position and enhancing operational execution has driven service efficiency and guest satisfaction. For 2024, the company expects comps growth in the mid to high-single-digit range, driven by its transaction growth and strong comps growth trends.

Driving Efficiency Through Innovation: Apart from coaching and training around throughput, Chipotle is focused on leveraging technology and innovation to simplify the preparation process. Initiatives such as dual-sided plancha, which reduces cooking time while maintaining food quality, are being rolled out to 74 additional restaurants.

Chipotle is also testing two cobotic prototypes — Autocado and the Augmented Makeline — in select California locations. Autocado, developed with Vebu, automates avocado processing to enhance guacamole preparation. Then again, the Augmented Makeline, in collaboration with Hyphen, uses automated technology to prepare bowls and salads, improving efficiency and digital order accuracy.

The company is focused on back-of-the-house improvements to increase operational efficiency and enhance culinary consistency. These changes will help the team better execute key operational goals, ultimately improving the customer experience at its restaurants.

Innovative Menu Offerings: Chipotle’s menu innovation continues to exceed expectations, with limited-time offers contributing to increased customer engagement and spending. The return of Smoked Brisket, which has been highly anticipated for three years, has had a strong start, driving incremental transactions and higher spend.

Expansion Strategy: CMG has been expanding its footprint in North America and internationally. The company’s development strategy aims to enhance access to its restaurants, supporting growth through a steady cadence of openings and the incorporation of advanced features like Chipotlane.

Chipotle has made significant progress in expanding its presence in North America, with 185 year-to-date restaurant openings. The company is on track to open 285-315 restaurants this year, setting a record.

In 2025, Chipotle plans to open 315-345 locations, with at least 80% featuring Chipotlanes.

Estimate Revision of CMG Stock

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The Zacks Consensus Estimate for CMG’s 2024 earnings has trended upward in the past 30 days. The estimated figure indicates growth of 23.3% from a year ago. The consensus estimate for 2025 earnings has also moved up over said time frame, indicating 17.6% year-over-year growth.

Risks to CMG’s Stock Growth

Although the company is benefiting from new menu offerings, restaurant openings and improving throughput, it has underperformed the industry over the past six months. In the said time frame, CMG shares have declined 1.6% against the industry’s 11.4% growth. The fast-casual and quick-service restaurant sectors have seen intensifying competition, especially from brands with similar value propositions. This might put pressure on Chipotle's market share and sales growth. CMG, like many others in the restaurant sector, has faced rising labor and food supply costs. Inflationary pressures have affected profitability.

In the first nine months of 2024, food, beverage and packaging costs rose to $2.51 billion from $2.17 billion in the prior-year period. Labor costs increased to $2.07 billion from $1.81 billion last year. For the fourth quarter of 2024, the company anticipates inflation across the cost of sales and labor expenses to be in the low-single digits.

Valuation Looks Stretched

As Chipotle has outperformed the industry in the past year, its valuation looks a bit stretched compared with the industry average. CMG is currently valued at a premium compared with its industry on a forward 12-month P/S basis. The company’s forward 12-month price-to-sales ratio stands at 6.69X, higher than the industry’s average of 4.06X and the broader Retail-Wholesale sector’s 1.47X.

Buy, Sell or Hold - CMG Stock?

Chipotle continues to make strides in driving its operational performance through menu innovation, restaurant openings and throughput improvements, which have enhanced operational efficiency and guest satisfaction. The company’s focus on optimizing the expo position and leveraging technology, such as automated avocado processing and enhanced cooking techniques, supports its growth trajectory.

However, the company has faced significant challenges, including supply-chain disruptions and inflation across key commodities, which have negatively impacted margins. Despite price increases, rising food and labor costs have weighed on profitability.

Existing stakeholders are advised to hold their positions in this Zacks Rank #3 (Hold) stock, while prospective investors should monitor how the company manages these challenges before investing.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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