The pandemic has caused restaurants across the world to close their doors and look at ways to adapt in order to survive, but this stock has bucked the trend
As COVID-19 starts to ease in a lot of countries, restaurants are opening again. Many of them have not made it through the crisis and will remain closed forever, but one restaurant stock has adapted very well and it is beating the coronavirus slump.
Chipotle: How well has it recovered during the pandemic?
Chipotle (NYSE: CMG) is a massively popular Mexican grill chain of fast-casual restaurants. Specializing in the likes of burritos and tacos, the restaurant chain has seen very strong results over the past 2 months following an initial slump. Its share price halved to less than $500 by the middle of March, but since then it has steadily been rising, hitting all-time highs in early June after rising by 127% and bypassing the $1,000 per share mark.
The reason for this rapid turnaround is the quick transition for Chipotle to digital orders. This segment has seen a significant rise since the pandemic set in, with same-store online sales rising by 81%. Of the 2,600+ Chipotle stores in the U.S., 97% of them are offered through third-party delivery apps such as GrubHub (NYSE: GRUB) and Uber’s (NYSE: UBER) Uber Eats.
A lot of its restaurants have also reopened to the public with 50% capacity. Analysts’ previous estimates for the second-quarter decline in sales have been reviewed from 20% down to 9%.
How does it fare versus competitors during this downturn?
Chipotle is by far the market leader in the Mexican grill market segment in the U.S., further cementing this position during the pandemic. The likes of Panera Bread and Panda Express are the two other standout chains in this sector, but these are both privately-owned companies so there are little to no sales figures available.
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Traditional fast-food chains have seen strong share price recovery in recent weeks. McDonald’s (NYSE: MCD) good start to the year meant that there was no revenue loss in the first quarter. Its drive-thru segment accounts for about 70% of its business, which means that it is a lot more adaptable to the pandemic than others that rely more on in-store sales. Some competitors like Shake Shack (NYSE: SHAK) have started developing drive-thrus as a result.
With figures from the likes of Red Robin (NASDAQ: RRGB) and The Cheesecake Factory (NASDAQ: CAKE) showing rebounding levels of dine-in crowds, there is a lot of optimism for previously hard-hit restaurant stocks.
Is Chipotle worth investing in?
With a recession likely off the back of the pandemic, Chipotle is well-positioned to adapt and survive. Its offering is very price competitive, which is ideal when consumer’s disposable income tightens. It has shown that its operations are robust despite most of its restaurants being forced to close, which provides great confidence to the market.
Despite the company owning all of its locations, the business has posted profits every year since going public in 2006. Investors do need to note that there will not be a dividend coming from Chipotle for the foreseeable future as the restaurant chain has plans to continue expanding both in the U.S. and overseas.
While the pandemic will have set back these plans somewhat, new stores are a primary growth engine for the company. It is also investing in remodeling existing restaurants to increase average spend.
Overall, Chipotle looks like it has plenty of room for growth over the next few years as it continues to deploy its profits in smart ways.
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