I like Chipotle (CMG) as a restaurant — especially the carne asada — but the stock looks far less appetizing to me at the moment. Despite a 40% drop from its 52-week high and trading just above its lows, I remain Bearish on Chipotle.
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A big part of the reason shares of Chipotle are down, and why I’m negative on the stock, is that it’s a growth stock with slowing momentum. When Chipotle reported Q2 earnings results in July, it reported just a 3% increase in revenue growth and a 3% decrease in diluted earnings per share, hardly numbers befitting of a top growth stock.
Most concerning of all was a 4% decline in same-store sales growth. This metric measures sales from restaurants that have been open for at least a year. I view this as a red flag because Chipotle’s modest revenue growth was driven by new store openings, which is great, but the declining same-store sales don’t portend well for the long run, as it seems to indicate customers are losing interest in the locations where Chipotle has already been open for a while.
What Explains Chipotle’s Premium Valuation
Delving into the 4% decline, a 4.9% decrease in transactions was partially offset by a 0.9% increase in average check size. This is cause for concern because it means fewer customers are coming into the restaurant.
While Chipotle was able to partially offset this with a larger check size, I question whether they can continue to do this going forward in an environment where many consumers are feeling tapped out due to inflation and economic uncertainty, making spending $15-$20 on a burrito and a drink for lunch less palatable.
Chipotle Still Priced Like a Growth Star, Despite Cooling Performance
Chipotle is still being valued like it’s firing on all cylinders. Even after accounting for the 40% decline from its 52-week high, the stock still trades at a significant premium to the broader market. In fact, Chipotle trades at 33.8x 2025 earnings estimates, while the S&P 500 (SPX) trades for about 22.5x.
Chipotle enjoys a roughly 50% premium to the broader market’s valuation, which is simply difficult to justify based on its current performance. Chipotle stock is also significantly more expensive than that of blue-chip restaurant stocks like McDonald’s (MCD) and Domino’s Pizza (DPZ), which trade for 24.5x and 25.1x 2025 earnings, respectively.
Not only is Chipotle trading at a steep valuation compared to the broader market and its peers, but it’s even more expensive than the fast-growing ‘Magnificent 7’ stocks. For example, Alphabet (GOOGL) trades for 25.2x 2025 earnings estimates, and Meta Platforms (META) trades for about 28x. To put it bluntly, these companies are pushing the limits of AI, self-driving vehicles, and other exciting new technologies, yet they trade for valuations that are cheaper than those of a burrito chain with slowing sales momentum.
Chipotle Doubles Down on Growth Amid Sales Red Flags
To its credit, Chipotle is executing well on several fronts. The company recently expanded its share repurchase program by $500 million, leaving $750 million available — a sensible step given the stock’s pullback from recent highs.
At the same time, it continues to expand its footprint, adding 61 new company-owned restaurants last quarter, 47 of which included “Chipotlane” drive-throughs. For 2025, Chipotle projects 315 to 345 new openings, with a long-term goal of nearly doubling its store base to 7,000 by 2030 (up from ~3,800 today).
While this growth trajectory is ambitious and encouraging, the decline in same-store sales remains a red flag. In my view, stabilizing existing store performance should take priority before chasing aggressive expansion.
Is CMG Stock a Buy?
Turning to Wall Street, CMG earns a Strong Buy consensus rating based on 22 Buys, six Holds, and zero Sell ratings assigned in the past three months. The average CMG stock price target of $58.08 implies approximately 48% upside potential.
Investor Takeaway
I like Chipotle as a restaurant, and its stock has been a strong long-term performer, but today’s valuation looks excessive relative to the S&P 500 — especially given slowing sales growth. Investors drawn in by the recent pullback should think twice, as the stock’s premium multiple doesn’t appear justified.
For Chipotle to regain its investor appeal, either the valuation would need to compress further into value territory, or revenue growth — particularly same-store sales — would need to reaccelerate to support a high-growth multiple.