How to Buy Chipotle Mexican Grill (CMG) Stock

When it comes to quick dining, few options are as healthy, well-priced and versatile as Mexican food. Unsurprisingly, it is among the most popular cuisines in the U.S.

Through the last 3 decades, Chipotle Mexican Grill (NYSE: CMG) built a multi-billion-dollar empire on this trend. Regardless of the E.Coli outbreaks in 2015 and 2016 and the ongoing pandemic — the stock has soared to new highs.

If you are looking to invest in the restaurant industry, this guide will show you how to buy stocks, including CMG.

How to Buy Chipotle (NYSE: CMG) Stock

Use our step-by-step guide to buy Chipotle stock today.

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CMG Stock History

Chipotle Mexican Grill, Inc. is an American restaurant chain. Operating in the United States, Canada, UK, Germany and France — it’s among the leading fast-casual chains. This concept arose in the 1990s as a middle-ground option between fast food and full table service restaurants.

Contrary to the sector practice, Chipotle does not run its restaurants as a franchise — ensuring full control and quality consistency. The company also runs a no-GMO policy and is committed to using ethically sourced ingredients.

Interestingly, McDonald’s Corporation was a major investor but fully divested by the IPO in 2006. At its founding in 1993, the company's headquarters were in Denver, Colorado but moved to Newport Beach, California in 2018.

Chipotle operates 2,768 restaurants with 88,000 employees. The company is listed on the New York Stock Exchange under the ticker CMG (NYSE: CMG) and has a market cap of $43.45 billion.

CMG stock chart, Screenshot from Benzinga Pro on 4/12/2021

CMG Restrictions for Retail Investors

The main restrictions for retail investors include IPO exclusion and secondary offering limits.

Chipotle IPO’d in 2006, raising $173 million at a price of $22 per share. At the current price of $1,552, even if you bought at the close of the 1st day of trading ($44) — your investment would have been a 35-bagger over 15 years.

Chipotle currently carries no debt and has no need for the additional stock offering. Arguably, if anything, the company could do a stock split to bring the share price (in relative terms) to a more reasonable level.

Pros to Buying CMG

• Adaptability to pandemic: Operating in a sector that suffered a devastating decline in the COVID-19 pandemic, Chipotle actually outperformed and even increased same-store sales. While the industry average was -13.7%, Chipotle grew same-store sales by 1.8%. The company was on the mission from the very start and reacted quickly to increase sales and operate with drive-through (Chipotlanes).
• Innovation: As a notable innovator in the field, Chipotle understands its market. This is evident through the menu changes that accommodate every latest diet trend — whether it is keto, vegan, paleo or any other. Chipotle stepped up the marketing efforts even through 2020, introducing the 1st digital-only restaurant and launching a viral Tik-Tok Lid Flip Challenge campaign.
• Healthy balance sheet: The CMG balance sheet looks good. Both short and long-term assets comfortably exceed the liabilities. The company also carries 0 debt, so there are no interest payment risks.
• High institutional ownership: CMG has over 90% of institutional ownership. Although there are both pros and cons to institutional ownership, ultimately it provides stability to price. Professional investors are less likely to ditch the stock in the middle of a decline, exactly when your portfolio might be under pressure.

Cons to Buying CMG

• Overpriced: CMG is currently trading at an astonishing price-to-earnings ratio of 122. This is twice the price of the industry average (62). It’s hard to justify a valuation that high. Combined with the forward P/E, it gives the price/earnings to growth ratio of 2.40. As a general rule, a PEG ratio of 1.0 or lower suggests a fairly valued or undervalued stock.
• Too much technology: With reports of in-store customers redirected to order only through an app, the company seems to be looking forward too much too soon. As the economy re-opens, insisting on digital orders means giving up at least 15% of the population that does not own a smartphone.
• Industry headwinds: Despite outperforming the industry, the company had falling gross margins. Faced with delivery costs, the company managed to pass the cost to consumers as a 13% price hike. Just last week, the company raised selected prices another 4% due to the rising prices of beef. It’s also important to note that Chipotle is still below the profit margins from 2015, prior to an E.coli outbreak in a restaurant in Ohio.
• Political risks: Biden's administration is not looking friendly to corporations. There are 2 policies under revision that are of particular interest. Corporate taxes may rise from 21% to 28%. The tip credit could end and minimum wage could bump to $15 — effectively doubling the current $7.25 rate. This could pose problems for employers like Chipotle that have been criticized for understaffing restaurants.

Good Story at a High Price

Mexican food is always in demand. It’s up to companies like CMG to create value propositions that will cater to that.

Chipotle showed both resilience and innovation in the last few years, recovering from the setbacks and achieving impressive stock growth. Yet the market might be looking forward too much too soon. Chipotle is a promising sector story but not at the current price.

But as long as the company stays on the right path. it’s worth keeping an eye on CMG buying opportunities at more reasonable valuations.

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