Don’t Call It a Comeback
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Some of the best known stocks of the last decade have fallen in 2025. Can they make a comeback? Motley Fool Money starts now.
Welcome to Motley Fool Money. I'm Travis Hoem, joined today by John Quast and Rachel Warren. Today, we want to talk about comebacks and potential comebacks to some really well-known companies, Chipotle, Target, Crocs. Those are the three that are going to be on the tip of our tongue today. But there's a number of companies that fall into this category. Chipotle stock, John, has fallen 51% from its high in 2024. Same-store sales have gone negative. This is one of those companies that seemed indestructible since the whole E. coli thing early in the 2010s. things have really turned over the past year. So has something changed? And I also want to note that the valuation is something that we should talk about because this is a company that is very well known, always been very highly valued, but it still trades for 30 times earnings.
So is this the kind of stock that you're looking at? Hey, you know what? Maybe this is a stock to come back in 2026, or is it still a little too uncertain?
It's a good question, Travis. Let's just start by saying that over the long-term, stock price is correlated with profits. Chipotle's profits are somewhat OK right now, but investors clearly believe that they're headed lower. in coming years. That's why this stock has fallen as much as it has. I think there's some credence to the fear that Chipotle's profits could fall. There's a little trend emerging. If you look over the last three quarters, Chipotle has opened about 200 new locations. Average unit volumes have dropped about 3% over that time. That's actually pretty rare for Chipotle. Those average unit volumes, the sales per location per year, have gone up consistently over the last 20 years, let's say.
Lower sales volume at a location is going to lead to lower profit margins. That's just how it works. Accordingly, the restaurant-level operating margin has fallen over the past year. Not a ton, it's still good, but it has dropped. You start looking at a company like Chipotle that has already scaled so much, almost 4,000 locations right now, it thinks that it can add 3,000 more. But are those next 3,000 locations going to be as high of sale volume, as high quality as the last 4,000? That's really the question. If it's adding a lot of underperforming new stores, then it does drag down the profits.
John, you follow a lot of the restaurant space, at least a number of companies.
Why has Chipotle's stock fallen significantly in 2025?
Some of what we're seeing at Chipotle is kind of across the board, so it's not Chipotle specific. How does that play into your calculus? Just, you know what, maybe people are eating out less. Maybe fast casual is getting more saturated overall. Is that something that will just kind of go, you know what, maybe I'm interested but not over a certain price? Or how does that play into how you're thinking about the potential comeback of Chipotle?
I think it's a little bit dismissive to say that people aren't eating out as much. There's definitely some shifts happening in the market. We're seeing some of those more family-oriented casual dining chains doing a little bit better than they have in times past. It seems like there's some shifts happening. I will say with Chipotle, one of the interesting things is, it's in a very strong financial position. That makes it very hard to count it out. It's still earned $1.5 billion in net income over the past year. It has $1.8 billion in cash and investments, no debt other than its lease liability. It's still in a great position that it can pivot the business as it needs to, and it can still give cash back to shareholders.
I'd be very hesitant to say Chipotle's best days are over.
Rachel, there are things that restaurants can do to goose those same-store sales. John brought up the number of restaurants that they're opening. Always seems to be a push and a pull. If you're having negative same-store sales, do you want to open another 200 stores? Because could you just be cannibalizing yourself?
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