Stocks to buy

Since Brian Niccol was recruited from Yum! Brands’ (NYSE:YUM) Taco Bell unit to run Chipotle Mexican Grill (NYSE:CMG) in March 2018, Chipotle stock is up 492%.

Source: Northfoto /

Niccol replaced founder Steve Ells, who resigned in the wake of a food poisoning scandal.  The turnaround has been remarkable. Chipotle stock closed Sept. 23 at $1,944 a share.

Analysts, however, say you ain’t seen nothing yet. The company sailed through the pandemic, switching sales from dine-in to takeout.  Niccols’ loyalty program, modeled on that of Starbucks (NASDAQ:SBUX), has brought in $2 billion of sales during 2021, nearly half the total.

The latest broker price target on the stock is $2,250 a share.

Niccol’s Revolution Stokes CMG Stock

I’ve been on Niccol’s side since he joined up. He moved quickly, taking the headquarters out of Denver and into Newport Beach, California, where he recruited a new executive team.

While analysts thought he would emulate Taco Bell, which uses a franchise model, quirky ads and sells late night snacks, Niccol took the Starbucks path, with company-owned stores and a limited menu.

The result is a higher top line, but smaller margins. During the second quarter, for instance, net income was about $188 million, $6.60 per share fully diluted, on revenue of $1.892 billion. By comparison, McDonald’s (NYSE:MCD), which runs more of a franchise model, brought 37% of revenue to the net income line. But revenue from a much-larger chain was just three times’ Chipotle’s, at $5.89 billion.

The Starbucks model includes fast service, digital ordering, and speedy delivery. Even before the pandemic, Niccol was creating “Chipotlanes” for the delivery services. This made Chipotle my “stock of the year” in 2019.

Guac Gets Gamified

Things have only gotten better in the 2020s. Chipotle has “gamified” its app, with extras like apparel and free guacamole for regular customers.

Niccol, just 47, is now getting the kind of glowing personal profiles I predicted for him.  He says the key to the turnaround was listening to both managers and customers. What he learned was that his brand magic was “food with integrity.” He regularly visits the stores and gets upset when the chips run out.

Chipotle has thoroughly researched its millennial customer base, a group the previous management had been losing.

Niccol appeals to this group with an emphasis on fast, fresh food that can be eaten at a desk. He regularly tests new proteins like smoked brisket and plant-based chorizo. Chipotle has become big enough to design its own meat substitute rather than relying on outside vendors. When the reviews are bad, it keeps these experiments small.

Chipotle is adding over 200 stores this year, hiking wages (and prices) to compensate for the “challenging labor situation.”  Niccol says he wants to have 6,000 outlets.

The Bottom Line

If you’re buying Chipotle stock today, you’re paying up for it.

The market cap of $54 billion is about 9x annual sales, and 94x expected earnings. McDonald’s trades at 26 times earnings and even Starbucks has a price-to-earnings multiple of just 47x.

What you’re buying is growth. That came to 38% during the second quarter, compared with the bottom of the pandemic. Expectations for the third quarter, to be announced Oct. 21, are modest at $1.89 billion in sales and $6.23/share of net income. 

Chipotle isn’t a speculation. It’s an investment, a bet that Niccol can keep the growth going and avoid the scandals that brought down his predecessor.

There will be opportunities to buy it for less than it trades at today. There were two just this month, the stock falling to under $1,870 on market jitters.

Do what the customers do. Buy the dip.

On the date of publication, Dana Blankenhorn held no positions in companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Living With Moore’s Law: Past, Present and Future available at the Amazon Kindle store. Write him at or tweet him at @danablankenhorn. He writes a Substack newsletter, Facing the Future, which covers technology, markets, and politics.