Investors might be falling out of love with Chipotle.
The longtime darling of the restaurant industry has enjoyed several years of robust double-digit revenue growth and a soaring stock price to match. Shares skyrocketed to $US727 in February of this year, up 1,516% since Chipotle’s IPO in 2006.
But investors are slowly turning away from the chain, writes Jack Willoughby at Barron’s.
The company’s stock price has fallen 16% to $US609 since February, and investors expect it to drop another 15% to 20% to below $US500 this year, Willoughby writes.
Investors could be spooked by a number of challenges confronting Chipotle this year.
Chipotle is also opening restaurants at pace that could threaten sales at its existing locations, according to Charles Lieberman, chief investment officer at Advisors Capital Management.
“They’re opening 200 new units a year,” Lieberman told Barron’s. “It’s very hard to find that many good locations and sustain such a rapid expansion without cannibalising existing units or accepting less-attractive locations.”
Chipotle also runs the risk of expanding into areas where its “food with integrity” isn’t as highly valued, argues Ken Kurson at Esquire.
“Will customers at airports and military bases and mall food courts — all cited as growth areas by the company — care as much about food with integrity?” Kurson asks.
Despite its falling stock price, Chipotle is still a successful business with strong double-digit sales growth year over year.
On average, Chipotle’s revenue has grown 22% annually for the last five years.
But Wall Street expects that growth to drop to 17% this year, following two quarters that narrowly missed analysts’ expectations, Willoughby notes.
A Chipotle spokesman told Business Insider that the company doesn’t comment on opinions or speculation regarding its stock price.
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