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Chipotle Mexican Grill (
NASDAQ:CMG
) stock has been grilled slightly over the past few months, now down just shy of 17% from its all-time high near $2,175 per share. Indeed, the entire restaurant industry has taken the hit for the late summer, but don't let such negatives cloud recent automation innovations that could help power long-term growth (in sales and margins) over the long haul. As shares retreat, it's hard to be anything but bullish on the fast-growing, quick-service restaurant firm.
The consumer isn't in a very good spot right now, as inflation sticks around for a while longer. Though Chipotle is considered one of the healthier options in the quick-service restaurant scene these days, it's certainly not the cheapest. Indeed, compared to McDonald's (
NYSE:MCD
) — especially if you take advantage of coupons and offers through the mobile app — Chipotle can seem like quite the splurge, especially if you add guacamole.
At writing, CMG stock trades at a lofty
44.8 times trailing price-to-earnings (P/E) or 33.4 times forward P/E, making it one of the priciest stocks in the restaurant industry, which boasts a trailing P/E of 25.1 times. For the richer multiple, you're getting a lot of growth, not just in the form of menu innovation (Queso has been a profoundly delicious addition) and expansion opportunities, but in terms of autonomous technology that could help reduce CMG's headcount and drive operating margins higher.
Chipotle's Automation Efforts Shouldn't be Discounted
In a
prior piece, I outlined the autonomous technologies that impressed me. Most notably, the Autocado and "Chippy" robots, which help with avocado prep and tortilla chip production, respectively, were very compelling.
More recently, Chipotle doubled down on its automation efforts with robots that can automate the creation of burrito bowls and salads. For now, the new robot is in the test phase. And though it could take some time before it's rolled out across a large number of Chipotles across the country, I think the latest development should push analysts to re-adjust their financial models to the upside.
Indeed, Chipotle is serious about kitchen autonomy. Ultimately, the company seems well on its way to replacing more human workers over time. Management refers to such robots as "cobotic" (collaborative robots). This approach allows employees to redirect their focus toward other important initiatives.
Only time will tell how big of an impact such robotic innovations will have. I believe it could be a sizeable one, especially as light is shed on new innovations. Either way, it's hard to argue that the firm stands to become more productive with time.
With every new robot that we learn of, Chipotle is looking more and more like a technology company that's just in the business of serving Mexican food. Given this, a premium multiple to the peer group is well-deserved. In fact, it may not be large enough, given the longer-term automation opportunity at hand.
The Road Ahead for Chipotle
In the near-to-medium term, don't expect such robots (or cobotics) to have a meaningful impact on Chipotle's profitability. Indeed, automation innovations and a potential store rollout could take many years. As such, I think it's wise to play the long game with the stock if you're looking to benefit from the firm's move into the
artificial intelligence (AI) age.
In the meantime, there are macro challenges ahead as the company hikes prices for the fourth time in two years. The million-dollar question is whether the latest round of price increases will curb demand significantly.
Indeed, it's not hard to imagine that many consumers are getting sick of seeing the costs of everything continue to surge. Many consumers, like those in Canada, have already responded by buying less food in response to rampant inflation. Add the potential for weight-loss drugs to curtail consumer appetites, and a sales slump could certainly be in store over the coming months.
Still, I believe Chipotle can shrug off any such negatives, even as it hikes prices further. The food is just too tasty. And its latest second quarter, which saw revenue soar 13.6%, still signals robust demand. Indeed, management probably wouldn't have hiked prices again if demand showed signs of rolling over.
Is CMG Stock a Buy, According to Analysts?
On TipRanks, CMG stock comes in as a Strong Buy. Out of 21 analyst ratings, there are 16 Buys and five Holds. The
average Chipotle stock price target is $2,211.71, implying upside potential of 24.2%. Analyst price targets range from a low of $1,925 per share to a high of $2,570 per share.
The Bottom Line
Chipotle stock is still a great stock to consider, and many analysts agree. Though there are notable headwinds ahead, Chipotle continues to hit the spot with consumers. Longer term, Chipotle's "cobotics" could be the star of the show, as they automate a larger part of the kitchen.
Disclosure
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