By Evie Liu

Chipotle stock has tumbled 17% this year and sank to its lowest level in nearly eight months on Monday. This could be an opportunity to buy.

An hour before the closing bell, shares in the burrito chain were off 1.7%, at $49.39. The stock traded at $49.83 on July 26, 2024.

The reasons are the same for the broader market -- uncertainties about tariffs and recession.

But Chipotle and some of its rivals -- Sweetgreen, Cava, and Shake Shack -- are more vulnerable to these sharp selloffs of late because of their companies' rapid expansion and their high valuations.

Sweetgreen, Cava, and Shake Shack, for example, all have bigger year-to-date losses -- 24%, 30%, and 34%, respectively.

Within the group, Chipotle is the largest and the best-positioned for a bounceback.

Insiders are already scooping up the stock. Last week, Chipotle director Mauricio Gutierrez bought $500,000 worth of shares, at an average price of $53 each, according to a form he filed with the Securities and Exchange Commission.

Chipotle has been on a strong growth trajectory for many quarters, even as many of its peers struggle with declining traffic and weaker sales because of inflation.

Last year, CEO Brian Niccol left the company to lead Starbucks's turnaround. Scott Boatwright, who served as interim CEO, was officially named Niccol's successor in November.

In the fourth quarter, Chipotle opened 119 company-owned restaurants. Same-store sales improved 5.4% from a year ago; total quarterly revenue went up 13% year over year, and earnings increased 19%.

This year, management plans to open 315 to 345 company-owned restaurants and expects comparable sales to grow in the low- to mid-single digit range. Over the long term, the company aims to double its current size to reach 7,000 restaurants across North America.

Chipotle was a Barron's stock pick in August, when shares were about $54.

Wall Street is generally optimistic that the stock will bounce back. Of the 36 analysts that track the stock, three-quarters have a Buy rating with a consensus price target of $67, indicating a 34% potential upside.

Last month, Morgan Stanley analyst Brian Harbour upgraded his rating to Overweight from Equal Weight and raised his price target to $70 from $65.

Harbour said Chipotle may face a sluggish few months ahead, but rises to the challenges it faces.

"As the stock has continued to fade on weak sales data and growth stock pressures, an opportunity to step in has presented itself if one thinks these are short-term headwinds," he wrote in a note.

The analyst described the burrito chain as an "excellent tech play." The tech bets, combined with a strong brand and existing scale, could help drive margin growth or offset inflation, he said.

Chipotle has developed robotic technology to automate its kitchen operations. Last year, it rolled out Autocado, a machine that can cut, core, and peel avocados in 26 seconds. And it is testing an automated makeline that can build bowls and salads for digital orders.

Also, the company has a strong balance sheet -- a $750 million cash balance and a free cash flow of $1.5 billion in 2024. Those numbers allow the company to keep pushing ahead with its store expansions and technology development as well as give dividends and do share buybacks.

President Donald Trump's threat to place tariffs on products from Mexico -- he has temporarily suspended them -- could drive up prices of avocados, which Chipotle uses in many of its dishes. Half of Chipotle's avocados come from Mexico and the other half come from South American countries.

Boatwright estimated that tariffs could increase Chipotle's cost of goods by 0.6%, but said the company's economic model and balance sheet allows it to absorb inflation without passing along the added expense to consumers -- at least for now.

The stock is s currently trading at 37 times expected earnings for the next 12 months, the lowest valuation since October 2023. It could be time to take a bite in the burrito stock now.

Write to Evie Liu at evie.liu@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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March 10, 2025 15:11 ET (19:11 GMT)

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