After falling to new lows before and in reaction to Q1 earnings, Chipotle Mexican Grill spiced up Q2 numbers with a 25% spike in earnings growth. CMG stock gapped up on the news and continues to taste-test a new buy zone. It has also earned a spot on the IBD Breakout Stocks Index.
While Chipotle did not make the latest list of new buys by the best mutual funds, several signs point to demand for the stock. The Burrito King has posted eight straight quarters of rising fund ownership and 140 funds with an "A+" rating from IBD have reported a position in CMG stock.
IBD Mutual Funds Index members Fidelity Contrafund and MFS Growth also own shares.
Chipotle Mexican Grill earns a 98 Composite Rating. That's second only to Dave & Buster's Entertainment's highest-possible 99 rating among restaurant stocks in Stock Checkup.
See Who Joins Chipotle On The IBD Breakout Stocks Index
Chipotle Mexican Grill Serves Up AI and Machine Learning
Headquartered in Newport Beach, Calif., Chipotle Mexican Grill has over 3,000 restaurants in the United States, Canada, the United Kingdom, France and Germany. The Fortune 500 company is the only restaurant chain of its size that owns and operates all its properties.
In April, Chipotle announced Cultivate Next. The initiative will make early-stage investments in strategically-aligned partners that further the company's mission to Cultivate a Better World. The new venture fund will have an initial size of $50 million, financed solely by Chipotle.
At the same time, the fast food giant highlighted other initiatives in artificial intelligence and machine learning to enhance productivity.
For starters, it began testing an artificially-intelligent robot named Chippy to cook tortilla chips. It is also tapping into radio-frequency identification (RFID) to trace and track ingredients in its restaurant. At the same time, a new scheduling tool will leverage machine learning to build more effective schedules.
Adding to this impressive list, Chipotle made a 2021 investment in Nuro, a leading autonomous delivery company.
Chipotle Sets Table For Continued Growth
Looking to build on its strong Q2 earnings report on July 26, Chipotle has analysts expecting 30% year-over-year EPS growth in Q3. Estimates for the full year call for a 29% gain, followed by a 30% gain in 2023.
Chipotle Mexican Grill sports an "A" SMR Rating, which tracks sales growth, profit margins and return on equity. In addition, the company has a perfect 0% debt-to-equity ratio.
In a May profile, the Wall Street Journal noted how CEO Brian Niccol has a history of successful turnarounds that include Taco Bell, owned by Yum! Brands, and Chipotle. He took the reins in March 2018 after sales had crashed in reaction to the infamous 2015 and 2016 E. coli breakouts.
To give the burrito chain a fresh start, Niccol moved company headquarters from Denver to Newport Beach in Southern California. He also enhanced food-safety procedures, pushed delivery through companies like DoorDash and expanded online ordering tools.
In Q2 2022, Chipotle opened 42 new restaurants, with 32 locations including a Chipotlane. These digital order drive-thru pickup lanes enhance guest access and convenience, as well as increase sales, margins, and returns.
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CMG Stock Taste-Tests Buy Zone
Chipotle has carved out a rocky road since hitting a new high in October. Along the way, its 10-week moving average crossed below the 40-day line. But in a sign of rebounding technical strength, the 10-week benchmark is close to retaking the longer-term 40-week line.
The relative strength line has also perked up, building on the spark it got after Chipotle's strong Q2 report.
The CMG stock chart can be viewed as a nearly one-year long double bottom with a 1640.10 buy point. It initially cleared that entry Aug. 9, rising for several days before pulling back.
Chipotle Mexican Grill edged just under 1% higher Wednesday in light trade.
Chipotle is now trading just shy of the buy point. Look for CMG stock to get back into a buy zone in heavy volume.
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Follow Matthew Galgani on Twitter at @IBD_MGalgani.
