Should I Buy Chipotle Stock in 2025?

Chipotle Mexican Grill (NYSE: CMG) is set to report its fourth-quarter and full-year earnings for 2024 on Feb. 4. More importantly, it is the first full quarter for Scott Boatwright, who took over in August as interim CEO. Boatwright impressed the board to the point that it dropped the word "interim" from his job title in November, firmly installing him as the company's leader.

Nonetheless, the question for investors is whether his leadership will bring prosperity to Chipotle in 2025, or whether investors need to lower expectations on this restaurant stock.

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The state of Chipotle

Chipotle has become one of the more notable success stories in the restaurant industry. While it did not invent fast food, the company showed the market that it can make meals that are healthy and profitable. Its simple but effective approach has led to a footprint that now exceeds 3,600 locations (mainly in the U.S.) and continues to expand.

Admittedly, the sudden departure of CEO Brian Niccol in August was an unwelcome surprise for shareholders. Niccol's reforms ended the periodic E. coli and other outbreaks that hurt the stock during the tenures of both Steve Ellis and Monty Moran. He also brought in innovations, including an online ordering system and the Chipotlane.

However, the company's decision to elevate Boatwright likely represents a continuation of Niccol's legacy. Boatwright had served as COO since 2017 and had a hand in the changes that bolstered Chipotle's more recent successes.

Additionally, it created a model that can succeed in non-metro areas, leading to a stated goal of 7,000 restaurants in North America. This means it can double its North American footprint before saturating the market.

Furthermore, it supports a small but growing footprint in Europe and recently opened its first location in Kuwait. This is critical, because if it can succeed in international markets, it has the chance of achieving a size comparable to McDonald's or Starbucks.

Ongoing challenges

The problem with Chipotle's stock may be its success. Even amid Niccol's unexpected departure, the stock has risen nearly 30% over the last 12 months. Such performance indicates that Chipotle's management team has maintained the confidence of investors.

But are investors too confident? Its price-to-earnings (P/E) ratio now stands at 54. Although Chipotle's P/E ratio has not often fallen below 50 in recent years, the numbers may point to some overvaluation.

Its $8.5 billion in revenue in the first nine months of 2024 rose 15% compared to the same period in 2023. While that sounds impressive, investors should also remember that Chipotle grew the number of restaurants by 9% over the same period.

Chipotle's comparable restaurant sales, which includes only restaurants open for 12 months or more, rose 8% over that period. Since Chipotle kept operating expense growth at 13%, it also generated $1.2 billion in net income in the first nine months of the year, a 20% yearly increase.

Such numbers point to continued strength. However, they also leave investors to decide whether Chipotle performs well enough to justify its valuation, which could reduce stock gains over time.

Should I buy Chipotle stock in 2025?

Considering the state of Chipotle's business, Boatwright's leadership will probably keep Chipotle a buy in 2025.

Indeed, the Q4 earnings report could set the tone for the year, and its higher P/E ratio may add to the pressure on the company. As mentioned before, it only falls below 50 on rare occasions. Considering that history, some investors may want to wait for that earnings multiple to pull back before adding more shares.

However, choosing Boatwright as CEO likely represents a continuation of the leadership path that has made Chipotle and its stock so successful. As a result, it has established a growth path that will support years of rapid expansion, particularly if the company can succeed in its international markets.

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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool recommends the following options: short December 2024 $54 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.