Has there ever been a more controversial restaurant stock than Chipotle Mexican Grill? Despite a seemingly unending parade of food safety and nutrition concerns, shares of Chipotle continue to climb at a rapid rate.
Detractors can point to the outbreaks of foodborne pathogens, unhealthy calorie content and pricey company stock as investors’ chief concerns. Bulls and bears are frequently at odds over the stock, but shares have risen 75% in 2019 alone.
Think you might want to add CMG shares to your portfolio? It’s a good idea to learn more about the company first.
Quick Look: How to Buy Chipotle Stock
- Step 1: Make a plan. Think about your investment timeline, risk tolerance and profit-taking.
- Step 2: Figure out how much you can invest.
- Step 3: Find a low-cost broker to make your trade. There are several free or low-cost brokers you can use.
- Step 4: Identify a suitable entry point using technical analysis.
- Step 5: Execute the trade.
Chipotle History and Stock Performance
Former Culinary Institute of America student Steve Ells opened Chipotle Mexican Grill in 1993 in downtown Denver. Ells copied a popular style of food from San Francisco’s Mission District and served made-to-order tacos and burritos.
Ells’ first investor was his own father, who put down $85,000 to help his son open the first location. Ells and his father calculated that the restaurant would need to sell at least 100 burritos per day to turn a profit. Within a month, Chipotle was selling 100 burritos every hour.
Ells opened two more locations in 1995. By 1998, Chipotle Mexican Grill had 16 total locations in Colorado, Missouri and Minnesota, and attracted the attention of a company Ells had long promised not to emulate: McDonald’s.
McDonald’s recognized the chain’s potential for growth and made an investment in the fledgling restaurant in 1998. Ells had no intention of imitating the fast-food chain’s brand of cuisine but he did learn a lot about managing supply chains efficiently while running a restaurant chain. McDonald’s invested roughly $340 million in Chipotle between 1998 and 2006 and helped Chipotle grow from 16 stores in 1998 to over 500 by the time an initial public offering (IPO) was filed in 2006.
McDonald’s divested shortly before Chipotle went public and its initial $340 million investment netted the company a cool $1.5 billion return.
Chipotle was the apple of the stock picker’s eye once it went public in 2006. Buy recommendations rolled in, especially after the Great Recession faded into the background in 2010. However, food safety concerns boiled over in 2015 with multiple outbreaks of both E. coli and norovirus.
The norovirus outbreak sickened nearly 200 people in Simi Valley, California and the Boston College campus. In response, Chipotle shut down all locations nationwide while new food safety regulations were introduced.
Chipotle admitted its food has a greater potential for foodborne pathogens than its competitors because of its reliance on fresh, never frozen ingredients. Efforts to increase food safety have resulted in fewer instances of food poisoning at Chipotle locations and as of July 2019, no major contaminations have been reported in over a year.
Chipotle began trading on Jan. 26, 2006 and its price immediately doubled within that first trading day. In fact, the pre-IPO price was raised twice due to the demand for shares.
CMG shares have never dropped below the IPO price of $22. In fact, since the first day of trading, CMG’s lowest closing price is $39.30, which occurred on Nov. 21, 2008 — ground zero of the Great Recession.
Chipotle was one of the hottest stocks in the country following the recession. Chipotle recorded a $39.30 closing price during the height of the recession and rose to $440 per share by August 2012, a gain of over 1,000% in just under 4 years.
The company hit an all-time high of $758.57 on Aug. 17, 2015, but shares suffered during the aftermath of the E. coli and norovirus outbreaks. Four years later, Chipotle shares shattered this all-time high after an earnings beat on July 23, 2019, at a price of $777 in aftermarket trading.
Casual dining competitor Shake Shack went public shortly after the Chipotle food safety scare and has actually outperformed Chipotle since coming to market. Shake Shack is up 60% since its January 2015 IPO. In the same time frame, Chipotle has posted a gain of only 3.95%, mostly due to its food safety scare.
However, Chipotle shares have soared again since the start of 2019. The stock is up 71% year-to-date compared to Shake Shack’s 63% gain.
Future Outlook for Chipotle
Chipotle shares have been hot in 2019, but is the company still a buy? As always, you’ll need to research the stock before you make a decision. Yes, even a stock up over 70% like Chipotle deserves some scrutiny. Here are a few things to consider before you decide.
Why You Might Want to Buy It
Same-store sales up: Same-store sales increases are crucial to the success of casual dining chains like Chipotle. Chipotle’s same-store sales rose nearly 10% in the first quarter of 2019, compared to just 1.9% from chief competitor Shake Shack, according to Barron’s.
Five straight earnings beat: Chipotle’s earnings have consistently beaten estimates from analysts since weathering the storm of foodborne pathogen outbreaks. In fact, Chipotle has beaten analysts’ estimates in each of the last 5 quarters.
Year-over-year revenue growth: Another important financial statistic among restaurant industry stocks is growth on a year-over-year basis. Chipotle’s recent quarterly revenue growth was up 13.9% year-over-year with quarterly earnings growth clocking in at an impressive 48.3%.
Considerations Before You Buy
Persistent outbreaks of foodborne contaminants: Chipotle has been at the center of many outbreaks of E. coli, norovirus and salmonella since an episode in 2008 left over 400 people sick around Kent State University.
The most troubling outbreak occurred in 2015 and actually resulted in all Chipotle establishments closing for a day in February 2016 while food safety and sanitation techniques were revised and a new head of food safety was installed. The stigma of foodborne pathogens at Chipotle remains.
No international growth: Chipotle has a surprisingly small international footprint. Only 34 restaurants are located outside the United States: 19 in Canada, 7 in England, 6 in France and 2 in Germany.
High food costs: Farm-raised chicken, pork and beef helps give Chipotle’s food its quality taste, but it’s an expensive way to do business. Food costs continue to rise at Chipotle and menu prices are only so flexible when you call yourself a fast-food chain.
How You Can Buy Chipotle Stock Right Now
Chipotle is one of the hottest stocks of the year and just posted a big earnings beat, but you still need a plan before you buy shares. Here’s how to get started.
Step 1: Devise an Investment Plan
Even a stock with big revenue growth and frequent earnings beats requires an investment plan. Write it down on paper, put it in Excel or just type it up as a note on your phone. Write your goals down so you can refer to them later. Make sure to include some version of the following:
- Your investment timeline: How long do you plan to hold these shares?
- Risk tolerance: How much pain can you withstand before you have to sell? (This will be hard to stick to later if the stock hits a rough patch. That’s why it’s a good idea to write it down beforehand.)
- Taking profits: How long will you let your investment ride before you take some off the top or sell all of it?
Step 2: Figure Out How Much Capital to Allocate to CMG Shares
Once you put your investment plan on paper (or the technological equivalent), you’ll need to allocate some capital to Chipotle shares. How much of your portfolio should be devoted to CMG?
It’s always risky to put too much capital into any one stock, especially a restaurant with heightened food contamination risks like Chipotle. Every investor has different goals, so refer to your plan as you determine how much capital to use.
Step 3: Find a Low-Cost Broker to Make Your Trade
You can check out our pick for the best online brokerages or take a look at a shortlist of some of our favorites below.
|Broker||Best For||Commissions||Account Minimum||Choose your platform|
Get started securely through Webull’s website
1 Minute Review
Webull, founded in 2017, is a mobile app-based brokerage that features commission-free stock and exchange-traded fund (ETF) trading. It’s regulated by the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). Webull offers active traders technical indicators, economic calendars, ratings from research agencies, margin trading and short-selling. Webull’s trading platform is designed for intermediate and experienced traders, although beginning traders can also benefit. Webull is widely considered one of the best Robinhood alternatives.
||$6.95 for fewer than 30 trades/quarter.||$0||
Get started securely through eTrade’s website
1 Minute Review
E-Trade is best known for its user-friendly browser, desktop and mobile trading platforms and its extensive research and educational information. E-Trade may not have the lowest commissions compared to discount online brokers, but customers certainly get their money’s worth from E-Trade’s comprehensive offerings.
60 days of commission-free trades with deposit of $10,000 or more
||$4.95 volume discount available||$0||
Get started securely through Ally Investment’s website
1 Minute Review
If investors are on the hunt for a bargain broker, Ally Invest could be the one. With low commissions across the board, Ally Invest (formerly TradeKing) stops potential investors in their tracks with its especially low mutual fund commissions. Commissions on stocks and ETFs are notoriously inexpensive as well, and for more active traders or those with larger account balances, commissions can dip as low as $3.95 per trade.
$3.95 per stock trade for Active Traders at Ally Invest
Don’t let transactions costs drag down your trading profits; it’s easy to find a broker that offers cheap trades in 2019.
Step 4: Identify a Suitable Entry Point
Once you pick a broker, it’s time to apply a little technical analysis. You don’t just want to blindly send in market orders at the moment you decide to purchase stock.
Finding an entry point is a simple concept — buy shares just before they tick up, not after. Use concepts like support and resistance to determine the best possible entry points. Be sure to use limit orders once you identify an ideal price.
Step 5: Execute Your Trade
Found an entry point? It’s time to execute the trade. Refer to your investment plan and use your broker’s interface to purchase shares of CMG. Wait for your entry point and use limit orders to get the best possible price.
You can use a stop-loss order to automatically sell shares if they lose too much money. Keep an eye on your investment and always use the parameters laid out in your plan when you buy or sell.
Final Thoughts on Chipotle Stock
Chipotle is up more than 70% already this year and making new all-time highs. Some headwinds like food costs and contamination risks remain, but it’s hard to argue with the recent sales numbers.
New CEO Brian Niccol has already made his mark by expanding the menu to include more vegetarian items has announced the closure of 65 poorly-performing stores. Right now, Chipotle looks like a buy, but “right now” isn’t an acceptable time frame for every investor.