Given Chipotle's (NYSE: CMG) recent stock performance, one has to wonder if it's still reeling from the sudden departure of former CEO Brian Niccol last summer. Eight months after Scott Boatwright became the company's new CEO, the stock is now down over 25% from its high.

Despite the uncertainty such a transition brings, it's not necessarily clear why the restaurant stock is suffering. Is it down because of temporary factors, or do investors need to start taking a more negative view of the company? Let's take a closer look.

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The current state of Chipotle

At first glance, the CEO change looked like something that might have minimal impact. Boatwright had been the chief operating officer since 2017. Since he presumably played a role in the changes made by Niccol, that fact alone makes any significant changes to the company's successful business strategy less likely.

However, the results from the earnings report for the first quarter of 2025 might leave investors concerned about the state of the business. Chipotle experienced an annual comparable-restaurant sales decrease of 0.4%. Boatwright blamed consumer uncertainty for the slowdown.

Indeed, it's a considerable pullback from the 7.4% comparable-sales increase in 2024 and even the 5.4% yearly rise in comparable sales in Q4.

Also, Chipotle increased its restaurant count to 3,781 in Q1, a 12-month increase of 302 locations, or around 8%. With that, it reported $2.9 billion in Q1 revenue, but that 6.4% increase indicates Chipotle has lost some traction on a per-restaurant basis.

When factoring in operating costs, its operating margin in Q1 rose to 16.7% versus 16.3% in the year-ago quarter. Hence, even though its income tax expense rose, the $387 million in net income was an 8% yearly gain.

Nonetheless, the company predicts comparable-restaurant sales growth will stay in the "low single digits" for the year. That leaves shareholders wondering whether they'll have to adjust to lower growth numbers in future quarters.

Assessing the Chipotle investment case

Unfortunately, shareholders seemed accustomed to the higher growth rates of past quarters. Over nearly every period of three years or more, Chipotle stock typically outperformed the S&P 500.

Still, that changed in July of last year, two months before Niccol stepped down as CEO. Although the stock rose following his departure, it has steadily pulled back since December, and is now down 15% over the last 12 months.

Furthermore, the company's valuation is a concern due to the slowdown. Its price-to-earnings (P/E) ratio is 45, which is at the lower end of its range over the last five years. Chipotle has consistently been a pricey stock, but investors typically dismissed the valuation thanks to double-digit revenue growth. However, you might now wonder whether the recent drop is due to a compressed valuation.

Remember that more mature restaurant stocks, such as McDonald's and Niccol's current company Starbucks, trade at 28 times and 27 times earnings, respectively.

Maintaining Chipotle's high P/E will likely be a challenge. If growth slows permanently, that increases the chance of its valuation matching those of its more mature peers, presumably meaning a pullback of approximately one-third from current levels. Even if the stock doesn't fall that far, that differential indicates the share-price decline may continue.

Nonetheless, its relatively smaller size may help Chipotle compared to its larger peers. The number of Chipotle locations is less than one-tenth of either of these companies. That makes it easier to grow its footprint at a higher percentage rate.

Also, it plans 315 to 345 new locations in 2025 and has announced plans to open restaurants in Mexico. That indicates it can maintain its rapid pace of expansion, and possibly continue to command a premium valuation.

Should investors buy Chipotle stock?

For now, you should probably regard Chipotle stock as a hold. Admittedly, it continues to offer a compelling value proposition, amid a rapid expansion that's on track to continue.

Still, the company faces considerable uncertainty amid its leadership change and a sluggish economy, and the subsequent slowdown in sales growth seems to have worried investors.

Furthermore, Chipotle's P/E ratio may seem more appropriate for its more rapid growth in past years. Until you can either buy the stock more cheaply or identify a path for more rapid growth, you might want to refrain from adding shares.

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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool recommends the following options: short June 2025 $55 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

Chipotle Mexican Grill (NYSE: CMG) reported its financial results for the first quarter on Wednesday, posting adjusted earnings per share of $0.29, which exceeded Wall Street estimates. However, its revenue of $2.9 billion came up short of expectations.

This top restaurant stock has been a huge winner over the past five years (as of April 24), rising by 184%. But investors are losing their appetite for it in 2025. Shares have tanked by 18% so far this year, and they're down 28% from the all-time high they set in June 2024.

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Has that decline set Chipotle up as a stock you should buy now on the dip and hold for the next 20 years?

Dealing with economic weakness

U.S. consumers aren't in the best shape these days. The University of Michigan Consumer Sentiment Index's reading this month was the second lowest on record (data goes back to 1952). The only other time it was worse was in June 2022, right after the Federal Reserve started aggressively raising benchmark interest rates to combat soaring inflation.

The U.S. might not officially be in a recession right now. But the overall mood of consumers is far from rosy as they attempt to cut back on their discretionary spending in preparation for more difficult times ahead. That's taking a toll on Chipotle, a business that previously had enjoyed fairly durable demand.

The fast-casual Tex-Mex pioneer reported a surprising same-store sales decline of 0.4% in the first quarter. That was its first year-over-year drop since the second quarter of 2020 -- the onset of the COVID-19 pandemic. And it was a drastic reversal from the 7% gain it registered in Q1 2024.

"In February, we began to see that the elevated level of uncertainty felt by consumers are starting to impact their spending habits," CEO Scott Boatwright said on this week's earnings call. The company's outlook calls for same-store sales to increase in the low single-digit range for the full year.

To its credit, though, Chipotle has long implemented a strategy that focuses on its value proposition for customers. Management still believes this is the company's key strength, highlighting the below-$10 average cost of its chicken burritos and burrito bowls, its most popular entrees.

"This is about 20% to 30% below comparable fast-casual meals and can reach as high as 50% below comparable meals in some markets," Boatwright said about those menu items. This could at least provide a buffer that will allow Chipotle to fare better than rivals in a recessionary scenario.

Chipotle's growth story

It's easy to get caught up in the latest news about slowing sales, but don't let that cause you to forget Chipotle's phenomenal longer-term track record of strong financial performance. Between 2019 and 2024, its revenue rose by 102% while net income surged by 338%.

That growth came not just from higher sales per store, but also its rapidly expanding physical footprint -- and its efforts on that second front continue. Chipotle currently has 3,781 locations, with a goal of opening about 273 more before the year is over. It now has five restaurants in the Middle East, and the company just signed an agreement to open its first Chipotle in Mexico next year.

The management team remains confident that it will eventually hit its long-term target of having 7,000 stores open in North America. Based on one of its other objectives -- getting to $4 million in annual unit volume -- Chipotle is aiming for a top line of $28 billion a year at some point in the future. Given the company's track record of success, it's easy to be optimistic that it will hit that goal.

Is the stock expensive?

Shares of Chipotle usually aren't on the discount rack. That's because the market understands that this is a great business.

However, with the stock trading 28% off its peak, I think there's an opportunity here. Its current forward P/E ratio of 39 isn't necessarily a bargain, but it's certainly more reasonable than the multiple of 52 it traded at one year ago.

In my opinion, dollar-cost averaging your way into an investment in Chipotle and holding on for the long term seems like a smart strategy now. The company remains on course to have significantly greater revenues and earnings 20 years from now.

Should you invest $1,000 in Chipotle Mexican Grill right now?

Before you buy stock in Chipotle Mexican Grill, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Chipotle Mexican Grill wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $594,046!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $680,390!*

Now, it’s worth noting Stock Advisor’s total average return is 872% — a market-crushing outperformance compared to 160% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of April 21, 2025

Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends the following options: short June 2025 $55 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.