Chipotle: A Sizzling Success Story with Boundless Potential

The siren song of Chipotle Mexican Grill (NYSE: CMG) rings loudly in the ears of investors, especially after the revelation of a tantalizing 50-for-1 stock split. Recent market fervor propelled the stock to soar to a new zenith of over $3,000 per share before experiencing a slight dip.

Chipotle’s narrative is one of unfettered growth. Its revenue trajectory ascends at a dizzying pace, but it’s the company’s margins that truly steal the show in recent times. Presently, Chipotle boasts similar operational margins to industry titan Starbucks, all the while showcasing a superior growth velocity.

Unlike its counterparts in the restaurant domain, Chipotle eschews paying dividends, opting instead to reinvest profits back into the venture. While this audacious strategy can magnify gains, it also places the investment rationale under scrutiny during slower periods.

Chipotle dons a steep price tag as a stock—especially given its stature and sector. At the moment, its price-to-earnings (P/E) ratio stands near 66, albeit slightly lower at approximately 55 on a forward-looking basis.

Industry analysts forecast $64.78 in earnings per share for fiscal 2025 (pre-split), indicating a robust 21% surge compared to anticipated figures for fiscal 2024 pegged at $53.45 per share.

Should Chipotle sustain its bottom-line growth at a pace of 15% to 20% annually, the pricey valuation may gradually metamorphose into a more palatable prospect over time. Yet, there’s no denying the stock’s aura of perfection, warranting attention solely from investors who espouse unwavering faith in the company’s prolonged growth trajectory and embrace a multi-year horizon.

McDonald’s: A Marvel of Business Model Prowess

While Chipotle exudes allure, McDonald’s (NYSE: MCD) beckons with even greater promise. Investors now stand at the cusp of acquiring McDonald’s at a modest 24.5 P/E, a discount relative to its five-year median P/E of 27.1.

McDonald’s embarks on a trajectory of brisk dividend escalation. Its prevailing quarterly dividend stands at $1.67, effectively doubling over the past decade. In a bold move this October, McDonald’s upped its dividend by 10%, a substantial hike for a corporation of its stature. This maneuver positions McDonald’s on a trajectory to ascend to the mantle of a Dividend King by 2026.

McDonald’s possesses an underappreciated business model. Unlike Chipotle’s fully-owned U.S. establishments, a staggering 95% of McDonald’s global outlets operate under franchising agreements. The company retains ownership of real estate, reaping revenue from rent, royalties, franchise fees, and beyond. This framework places paramount importance on the brand’s esteem and the perceived revenue opportunities that franchisees can amass over time, overshadowing short-term performance and business cycle vagaries.

McDonald’s might lack Chipotle’s explosive growth, but it emerges as a superior investment for those seeking reliability. The company boasts a robust track record of rewarding its shareholders, with dividends nearly doubling over the past decade. However, it’s the holistic capital return program that truly sets McDonald’s apart, underpinned by extensive share repurchases amounting to over a quarter of its outstanding shares during the past decade.

In essence, McDonald’s breathes an air of completeness, making it a compelling buy at present.

Coca-Cola: An Oasis of Steady Yields

Coca-Cola (NYSE: KO), while not matching McDonald’s share buyback fervor, doesn’t court the same growth prospects as Chipotle or McDonald’s. Notwithstanding, Coke radiates stability and the critical virtue of avoiding overextension.

Coke emerges as a pioneering force in the global soda landscape. In today’s context, the company grapples with a mature phase, navigating growth constraints without resorting to reckless measures. To its credit, Coke masterminds measured, largely effective acquisitions, all while steadfastly adhering to its forte of nonalcoholic beverages, a stark divergence from PepsiCo‘s sprawling brand portfolio encompassing Frito-Lay, Quaker Oats, and an array of other product categories.

In a year marred by market tumult, Coke often manages to outshine. Conversely, during periods of market exuberance, Coke typically lags. Understandably, Coke has somewhat underperformed lately due to an excessively buoyant market milieu.

The allure of investing in Coke lies not in trumping the market but in mitigating downside exposure while amassing passive income streams. In a stock market landscape fraught with uncertainties, Coke stands out as a bastion of predictability. The company boasts an unbroken streak of dividend hikes spanning 62 years.

With a handsome yield of 3.2%, surpassing that of several reliable Dividend Kings, Coke epitomizes dependability. This is precisely why investment luminary Warren Buffett’s Berkshire Hathaway has held the stock dear for over three decades.

Panning Out the Perfect Portfolio Mix

The magnetic pull of a success saga like Chipotle may be irresistible, especially as the door to entry (sans fractional shares) swings wider post a stock split. However, maintaining conviction in a stock over time hinges on investing in companies that align with one’s comprehension and investment objectives.

Chipotle’s absence of dividends and lofty valuation won’t resonate with every investor. For those gravitating towards income and value propositions, McDonald’s and Coke emerge as superior alternatives.

Yet, for a judicious investor, accumulating shares across all three entities provides a harmonious blend of growth, value, and income—a recipe for financial satisfaction.

Are you contemplating a $1,000 investment in Chipotle Mexican Grill?

Before diving into Chipotle Mexican Grill shares, deliberate on this:

The analyst cohort at Motley Fool Stock Advisor has pinpointed their selection of the 10 best stocks primed for investor fortunes, and Chipotle Mexican Grill didn’t make the cut. These 10 stocks hold the potential to yield substantial returns in the forthcoming years.

Stock Advisor furnishes investors with a lucid roadmap to success, replete with portfolio construction guidance, regular analyst updates, and a pair of fresh stock picks monthly. Since 2002, the Stock Advisor service has eclipsed the S&P 500’s returns by tripling the benchmark*.

Explore the 10 stocks

*Stock Advisor returns as of March 21, 2024

Daniel Foelber is holding long positions in May 2024 $90 calls on Starbucks. The Motley Fool has stakes in and advocates for Berkshire Hathaway, Chipotle Mexican Grill, and Starbucks. The Motley Fool abides by a disclosure policy.

The perspectives and opinions expressed herein belong to the author and don’t necessarily mirror those of Nasdaq, Inc.