Investors are consistently bullish on Chipotle Mexican Grill (NYSE: CMG) stock, but it picked up some extra hype recently with its attention-grabbing 50-for-1 stock split on June 26.
Since then, the hype has calmed down, and shares have pulled back from their year-to-date highs. But even so, Chipotle stock is up a market-beating 26% so far this year. Can it go even higher before the end of 2024?
Why Chipotle stock is surging
The stock-split hype certainly had a lot to do with Chipotle stock's popularity this year. Management first announced the transaction in mid-March, becoming another high-profile stock split for 2024. Shares gained 17% between the announcement and the split.
Stock splits can only happen with years of share-price growth and a bullish outlook, and there's a lot to be bullish about here. Chipotle is already the leader in the fast-casual dining category. Its fresh and healthy concept at an affordable price attracts a loyal crowd. It boasts strong, consistent comparable-sales growth at a time when many competing restaurant chains are struggling. It's also highly profitable with expanding margins despite rising food and labor expenses.
The company continues to expand at a rapid pace too; it's already opened 47 stores in the first quarter, and it plans to open about 300 total in 2024 (up from 271 last year). Management has set a long-term goal of expanding its store count from about 3,500 to over 7,000.
Is Chipotle too expensive?
A common concern from investors, however, is Chipotle's valuation. The stock trades at a price-to-earnings (P/E) ratio of 62 as of this writing. That's a premium valuation, but believe it or not, it's trading at a discount to its five-year average multiple of 76.
Chipotle commands a premium valuation because of its reliable track record, but it's still a high premium for a company reporting low double-digit revenue growth. Nvidia, by comparison, trades at a P/E ratio of 75 while reporting triple-digit growth.
Chipotle has fallen 12% since its stock split. Much of restaurant sector has retreated in reaction to analysts' calls for a slow summer season, but investors need to keep track of long-term developments, not short-term volatility. A great business will bounce back from temporary headwinds.
Even trading below its historical average, Chipotle stock isn't a bargain, so the question is: Can Chipotle sustain this valuation?
Current momentum suggests the stock can end the year with market-beating gains. But that's a short-term outlook. Looking further out, Chipotle has an ambitious expansion plan, and long-term investors will likely thank themselves for buying Chipotle stock today.
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Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
