Chipotle Mexican Grill (NYSE: CMG) has been one of the top-performing restaurant stocks over the past year, with shares up over 100% since hitting pandemic lows in March 2020. But as the market enters a period of uncertainty, some investors are starting to question whether the fast-casual chain's stock is still a good buy.
Top-ranked fast casual chain Chipotle Mexican Grill's (NYSE:CMG) Relative Strength Rating is currently 84 out of a possible 99, indicating strong market performance. With the market in confirmed uptrend, Chipotle stock may have lots of room to run.
However, there are signs that Chipotle's growth may be slowing. The company reported lower-than-expected earnings in the first quarter of 2021, with revenue growth of just 23% compared to the same quarter last year. Rising costs, including labor and food expenses, have also put pressure on the company's margins.
As a result, some analysts have downgraded their ratings on Chipotle's stock. Morgan Stanley recently lowered its rating from "overweight" to "equal-weight," citing concerns about the company's valuation and future growth prospects. Similarly, Stephens downgraded its rating from "overweight" to "equal-weight," noting that the stock's current price already reflects a lot of good news.
We're starting with a neutral rating on the stock and anticipate...
Despite these concerns, there are still reasons to be bullish on Chipotle's stock. The company has a strong brand and loyal customer base, and its digital sales have been growing rapidly. In the first quarter of 2021, digital sales accounted for 50.1% of Chipotle's total sales, up from just 18.2% in the same quarter last year.
In addition, Chipotle is testing new menu items and expanding its delivery options, which could help drive future growth. The company recently added cauliflower rice to its menu, and it's also testing smoked brisket in select markets.
This week, Chipotle stock moved further above its key 50-day moving average, which is a bullish sign. The stock's relative strength line is also trending higher, indicating strong market performance.
That being said, while many other businesses contend with slower growth and pressured margins, Chipotle Mexican Grill (CMG 1.55%) continues to outperform. The company's stock is still a solid buy for investors looking for exposure to the fast-casual restaurant industry.
Cetera Investment Advisers now owns 777 shares of the restaurant operator's stock worth $1,229,000 after acquiring an additional 45 shares...
At the same time, it may make sense for some investors to take profits and reduce their exposure to Chipotle's stock. After a 5% decline over the last six months, at the current price of around $1552 per share, we believe Chipotle Mexican Grill stock (NYSE: CMG) is fairly valued.
Overall, Chipotle's stock remains a strong performer in the fast-casual restaurant industry, but investors should consider their risk tolerance and investment goals before buying or selling shares.