Stephanie Link, Chief Investment Strategist & Portfolio Manager at Hightower Advisors, isn't shying away from Chipotle Mexican Grill Inc CMG despite its recent stock decline.
The Newport Beach, California-based fast-casual franchise is down more than 20% since June 18. Link started a position in Chipotle when it was down over 13% on Tuesday, Aug. 13.
“This was a name we were watching as the market declined because it is a high-quality business, and you typically don't get many opportunities to buy this name on sale,” Link told Benzinga.
Chipotle's valuation metrics had significantly improved, with its EV/EBITDA dropping from 41x to 29x and its P/E from 61x to 44x within weeks, she explained.
Consumer sentiment remains a concern, but Chipotle boasts a “sticky customer base of over 40 million reward members,” Link said.
The company also continues to post impressive numbers, including more than 11% comps and over 8.7% transaction growth.
“Losing Brian Niccol is obviously a loss, but we think the brand’s strength and value will continue without him,” Link added, underscoring her confidence in the company's long-term prospects. Niccol recently left Chipotle to join Starbucks.
Secret Sauce For Chipotle
In the current economic environment, many investors might be wary of consumer-facing stocks. However, Link remains bullish on Chipotle, emphasizing the company's strong pricing power and loyal customer base.
“Chipotle is constantly driving value for consumers and arguably one of the best value meals around the industry,” Link said.
The company's rewards program has grown exponentially from 3 million members in 2019 to a staggering 40 million by mid-2024, a testament to its ability to engage and retain customers.
“We think the Chipotlanes are well received… arguably faster than going through competitor channels,” Link noted, highlighting the importance of convenience in today's fast-paced world.
Digital Innovation: The Key To Chipotle's Future Growth
Digital transformation is at the heart of Chipotle's growth strategy, and Link sees this as a significant driver for the future.
“Chipotle is investing in store unit growth as well as digital,” Link explained, pointing to the success of the Chipotlane units, which are now driving 60-70% cash-on-cash returns.
With 900 Chipotlanes in operation by mid-2024, up from just 77 in 2020, Link believes there's plenty of room for further expansion. She also mentioned the brand's innovative digital initiatives, like the Burrito Vault Game and personalized offers, which keep customers engaged and coming back for more.
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