Chipotle stock hits records; Can he go even higher?

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Chipotle‘s (NYSE: CMG) the stock is hotter than steak fajitas in 2021. His management can be commended for skillfully handling the onset and duration of the pandemic, quickly adapting to digital sales when in-person meals have been forced to close.

And now that economies are reopening, Chipotle is making the best of both worlds – maintaining a high degree of digital controls while on-site operations recover. The market is rewarding fast and casual dining by increasing its share price by 47% this year. With Chipotle stock already nearing records, is there room for it to rise further?

Image source: Getty Images.

Chipotle identifies critical long-term goal

The coronavirus pandemic had the potential to cripple Chipotle’s business, and instead the company may be in a better position now than before the outbreak. In its most recent quarter, ending June 30, the company said it recovered 70% of its on-premise business while maintaining 80% of digital sales. This gives the market the impression that Chipotle has gained a mass of new customers during the pandemic. Or perhaps just as beneficial, digital orders for pickup or delivery are additional occasions where people choose to buy Chipotle.

This development has given management the confidence to meet its long-term Adjusted Unit Volume (AUV) target. AUV is the total value of sales that Chipotle estimates it generates per store. Chipotle hit the previous goal of $ 2.5 million in the last quarter and simultaneously raised it to $ 3 million. The company had 2,853 stores as of June 30, so $ 500,000 of that number of stores represents a substantial increase in annual revenues. Still, the announcement may be premature. After all, it’s only been a quarter since economies have fully reopened.

However, that wasn’t the only good news from Chipotle during the quarter. Markets are concerned about how companies are handling rising commodity and labor prices. Therefore, investors were happy when the company instituted price increases and sales did not react badly. Chipotle has increased the prices of several products by 3.5% to 4%.

Is Chipotle’s stock too far too fast?

Chipotle stock is up 47% year-to-date and 30% in the past three months. The last quarter’s results have been excellent, but the positive expectations may have been incorporated too quickly into the action. After all, it has yet to release quarterly results since increasing the long-term AUV target. Additionally, investors still don’t know how sales were affected during the coronavirus outbreak caused by the delta variant.

For these reasons, there is a reasonable likelihood that Chipotle’s stock will face increasing resistance, at least until the company releases another quarter of operating results showing progress towards long-term goals. Investors looking to start a position in hot restaurant stock are best served to wait for a pullback in the stock price or for confirmation from another quarter that the company is maintaining digital sales while recovering the business in anybody.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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