Chipotle Mexican Grill (NYSE:CMG) has been one of the best-performing restaurant stocks over the past decade, but the past year has been more volatile. After hitting an all-time high last summer, the stock failed to push higher and is now down 20% from its December peak. Investors have been watching closely to see whether this is just a temporary setback or a sign that growth is slowing.
The most recent earnings report in early February did not help sentiment. While the results were mostly in line with expectations, revenue came in $30 million below estimates, and margins failed to show consistent improvement.
Investors had been expecting more, and shares sold off in response. Since then, Chipotle has struggled to gain traction, returning to the same price levels seen last year.
Morgan Stanley's Bullish Call and 30% Upside Target
Despite the stock's recent weakness, Morgan Stanley remains optimistic about its long-term potential. On Monday, the firm upgraded Chipotle to Overweight from Neutral, assigning a $70 price target that suggests a 30% upside from current levels.
According to Morgan Stanley analyst Brian Harbour, Chipotle's core strengths remain intact. The company's product, marketing strategy, and operational efficiency should drive steady performance into 2025 and beyond. Harbour also believes Chipotle is well-positioned to lead the restaurant industry in automation, a move that could significantly reduce costs, improve margins, and enhance throughput.
Unit growth remains another key driver for Chipotle, with international expansion playing a growing role in its strategy. Harbour highlighted the company's strong balance sheet, which gives it flexibility to invest in store expansion, technology, and capital returns.
What's Holding Chipotle Back?
While analysts remain bullish, investors have taken a more cautious stance. The revenue miss and lack of margin expansion suggest that Chipotle's growth may be slowing, at least in the short term. A second consecutive earnings miss could further erode confidence and put additional downward pressure on the stock.
Another factor weighing on sentiment is the broader market's shift away from high-valuation stocks. Investors are scrutinizing whether companies like Chipotle, which trade at premium valuations, can continue delivering strong growth. Take its price-to-earnings (P/E) ratio, for example. At 47, Chipotle's is nearly double that of McDonald's (NYSE:MCD) P/E ratio of 27. If revenue growth continues to slow or margins tighten further, it could be difficult for Chipotle to justify its current valuation.
Can Chipotle Regain Momentum?
From a technical standpoint, Chipotle's RSI is currently at 40, indicating that selling pressure may soon start to ease.
The stock has not yet reached oversold levels, but it is approaching a key support zone where buyers could step in.
If momentum shifts and buying interest returns, Chipotle could stabilize ahead of its next earnings report.
For Chipotle to regain investor confidence, it will need to show stronger revenue growth and improved margin expansion. The company's ability to execute automation and international expansion will also be closely watched.
If it delivers a strong performance in its next earnings report, investors could quickly return to the stock, validating Morgan Stanley's upside target.
Chipotle Faces Short-Term Struggles, But Analysts Remain Bullish
Chipotle's recent struggles have raised concerns, but analysts remain confident in its long-term growth story. Morgan Stanley's $70 price target suggests that there is still significant upside potential, but much will depend on how the company performs in the coming months.
For long-term investors, this pullback could present an opportunity to buy shares at a discount before sentiment shifts again. However, short-term risks remain, and the next earnings report will be a critical test for the stock's ability to regain momentum.