Chipotle Mexican Grill (NYSE: CMG) is set to release its fourth-quarter and full-year 2024 earnings on February 4, a highly anticipated report that could influence investor sentiment for the year ahead. The company, which has long been a standout in the fast-casual restaurant industry, has continued to expand aggressively while maintaining profitability. However, questions remain about its high valuation and whether its stock is still an attractive buy in 2025.
Chipotle’s Expansion and Leadership Shift
Chipotle has established itself as a leading success story in the restaurant industry, combining fresh, customizable meals with efficient service. With over 3,600 locations, primarily in the U.S., the company has maintained a strong growth trajectory and aims to double its North American footprint to 7,000 restaurants. Expansion into Europe and the Middle East, including a recent launch in Kuwait, signals an effort to broaden its international presence.
The company also underwent a major leadership transition in 2024. Scott Boatwright, who had been Chief Operating Officer since 2017, was appointed permanent CEO in November, following the departure of Brian Niccol. Boatwright played a key role in implementing operational improvements, such as Chipotlanes and digital ordering, which have contributed to recent successes. His leadership is expected to continue the strategic direction that has fueled Chipotle’s growth.
Strong Financials but Rising Costs
Chipotle’s financial performance remains robust. In the first nine months of 2024, revenue grew 15% year-over-year to $8.5 billion. However, restaurant count increased by 9%, indicating that a significant portion of revenue growth stemmed from expansion rather than organic sales improvements.
Comparable restaurant sales, which measure growth at locations open for more than a year, rose 8% over the same period. Meanwhile, operating expenses grew 13%, reflecting the increasing costs associated with expansion and operational adjustments. Despite this, Chipotle still reported $1.2 billion in net income, marking a 20% annual increase.
Valuation Concerns and Market Confidence
Investor confidence in Chipotle remains high, with the stock rising nearly 30% in the past year. However, its valuation has raised concerns. Chipotle’s price-to-earnings (P/E) ratio sits at 54, a level that may suggest overvaluation compared to industry standards. The stock has rarely traded below a P/E of 50 in recent years, making it difficult to determine whether it offers good value at current levels.
The upcoming Q4 earnings report could be a critical factor in shaping investor decisions. Strong results may reinforce bullish sentiment, while any signs of slowing growth or rising costs could lead to a correction. Some investors may wait for a pullback before buying, while others may see the company’s expansion strategy as a reason to remain optimistic.
A Long-Term Growth Story?
Chipotle’s expansion plans, operational improvements, and leadership stability suggest continued long-term growth potential. The company’s success in international markets could be a game-changer, potentially positioning it alongside global giants like McDonald’s and Starbucks. However, its high valuation and rising costs present challenges that investors must consider.
For those with a long-term perspective, Chipotle remains a strong contender in the restaurant industry. However, short-term investors may prefer to wait for a dip before committing, as its high valuation could limit immediate gains. The February earnings report will be a key moment in determining whether Chipotle can sustain its momentum in 2025.