Restaurants are among the hardest hit businesses from the 2020 novel coronavirus pandemic, with these businesses being forced to shut down, furlough staff, and drastically pivot their business models adapting to constantly changing local laws regarding food and alcohol delivery.
Many states, cities, and counties closed indoor restaurants, and both large and small brands are feeling the squeeze. Some even filed for bankruptcy, including fast food franchises, casual diners, full-service restaurants, and more.
So why is Chipotle stock so high?
The answer to this question predates the COVID-19 coronavirus. In fact, this 27-year-old fast-casual Mexican grill has a storied history.
Chipotle dealt with a variety of outbreaks over the years, including hepatitis, Salmonella, and several E. coli and norovirus outbreaks.
This isn’t its first viral rodeo, and that doesn’t even include the cyberattacks launched against the company or any of its interesting and often innovative marketing techniques.
Let’s dive into what Chipotle’s been up to over the past few years that has its shareholders looking up too.
Is Chipotle (CMG) A Good Stock?
Chipotle founder and executive chairman Steve Ells saw a niche when he opened the first Chipotle Mexican Grill in Denver, Colorado in 1993. The popularity of its menu led to an expansion fueled by a minority investment from McDonalds.
This led to one of the most successful restaurant IPOs of the 2000s (more on that in a minute). The company now has over 2,500 locations around the world and raked in $5.6 billion in revenues in 2019 alone.
Not only is Chipotle constantly expanding into new markets, but it’s also pushing for new products to compete with chains like Rubio’s Coastal Grill, Baja Fresh, and Qdoba. It focuses on five main items: burritos, tacos, bowls, salads, and quesadillas.
Each item is then personalized with the customer’s choice of proteins and toppings. Experimenting with new proteins is common, and 2020 saw the introduction of a lime-infused cauliflower rice to lure in more health-conscious consumers.
Brand recognition and savvy usage of third-party delivery services, like Uber Eats and DoorDash, makes it a great stock, especially for those who already bought in prior to 2017. Let’s talk about why Chipotle is so expensive (the stock – not the food).
Why Is Chipotle Mexican Grill So Expensive?
Think of Chipotle as a food-safety hipster – the company has been slammed in the past for a variety of viral and bacterial outbreaks that hammered its brand equity and stock prices.
However, it also forced the company to years ago implement the type of sanitation and safety protocols that many food-based businesses were slow to react to in the midst of the 2020 novel coronavirus pandemic.
Its food preparation practices implemented in 2015 included mandatory hand washing, availability of hand sanitizer at the door, and better air ventilation to create cleanroom standards.
When the pandemic hit, Chipotle’s stock crashed with the rest of the market, but it quickly recovered and kept its staff working as municipal shutdowns spread across the globe.
It had the procedures in place to keep its businesses running and serving customers via takeout and delivery and creating a clean environment. It even partnered with Shopify on a virtual farmer’s market as consumers became shut-ins.
These steps maintained profitability and returned the company to its pre-Covid trajectory, making the coronavirus just another notch in the list of infectious diseases the company survived since its fabled IPO. In fact, let’s talk about that.
What Was Chipotle IPO Price?
Chipotle’s pre-IPO interest soared, so when it went public in January 2006, it opened at $22 per share and closed that first day of trading at $44.
It has continued a growth trajectory ever since and maintains a per-share value of over $1000 post-coronavirus (after dropping below $600 amidst economic uncertainty in late March).
This means if you invested $100 on day one, you’d have over $4000 worth of Chipotle securities in 2020, making it a healthy investment for early adopters.
Since then, the company has definitely had ups and downs like any other. Share prices took several dips over the past decade, mostly correlating to outbreaks of food borne illnesses being linked to the company in the media.
Chipotle’s expert public relations and marketing do a great job of steering the conversation toward the positive end of its changes. Of course, all stocks eventually reach a ceiling, leaving many wondering if it’s too late to invest in Chipotle.
Is Chipotle Stock Overvalued?
Its customers love Chipotle, and the store’s $2.2 million per-store sales average, known as average unit volume (AUV), puts it in the top tier of the restaurant industry.
Raising employee wages only improved its overhead costs and balance sheets, and the company carries virtually zero debt with over $850 billion in liquid cash to spend on whatever it needs to get through the series of crises that ravaged the economy in 2020.
The company still has plenty of room to grow too. Its 2500 stores pales in comparison to other chains like McDonald’s, for example, which has over 38,000 restaurants around the world.
Maintaining the same level of profitability with more stores is the biggest question, and there’s still risk of a turbulent ride investing in Chipotle at today’s prices. Investing at $1000 per share is a much different story than investing at $1000, and you’re unlikely to see the same returns.
Still, there’s plenty of juice left to squeeze out of the fast casual burrito, and Chipotle is well positioned to find it.
Why Is Chipotle Stock So High: The Bottom Line
Chipotle has always had a knack for growth, despite operating in a market with heavy competition. While other restaurants large and small struggled to adapt to the coronavirus lockdown, Chipotle was already in the right place at the right time to properly serve a need for sanitary food.
Its share prices are back to the trajectory they were on pre-Covid, bucking the industry trend and leaving a spotlight on this company for better or worse.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.