3 Reasons Warren Buffett Might Love Chipotle Stock, and 1 Reason He'll Avoid It Like the Plague

Warren Buffett is known as the greatest capital allocator of all time. He runs Berkshire Hathaway(used form a nominal expression)Merchandise It made him a legend. But he missed a big winner.

Chipotle Mexican Grill (NYSE: CMG) It may not be a company that operates an Artificial Intelligence (AI) Tip-Top business, but the it It has been an excellent investment. Over the past five years, its stock price has soared by 3,15%, a rise that has crushed Nasdaq ResonanceindicesThe

Oracle of Omaha may or may not have his eye on this booming company. But here are three he might like to have at the top. Food & Beverage stocks(used form a nominal expression)rationale and an obvious reason why he might avoid it like the plague.

Building Strong Brands

Looking at Berkshire's holdings, you'll see that many companies have strong brands. Apple, American Expressrespond in singing Coca-Cola All are Warren Buffett-heavy stocks.

Chipotle may not be able to compete with these industry leaders, but there's no denying the brand's reputation in the highly competitive restaurant industry. The company single-handedly pioneered the fast-casual casual food category, and so much so that there are other pre-cooking concepts of different cuisines around the country trying to replicate Chipotle's success. The company has approximately 3,500 stores, which adds to its extensive reach and brand exposure.

According to Piper Sandler.Company Spring 2024 "Granite with Teens " Chipotle is the third most popular food brand among teens, according to the survey. This is up from #4 in the 2023 swing season.

Customer First

Businesses that put their customers first do very well. Berkshire Holdings'AmazonfirmsThat's the idea. I think Chipotle is one of those companies.

Over the past few years, the company has been working to strengthen its digital and technology capabilities, and Chipotle has a thriving rewards program that facilitates digital ordering. In the fourth quarter, online orders accounted for 36% of total sales.

In addition, the company is actively building new Chipotlanes stores that are drive-through locations. This increases accessibility and convenience for hungry customers-which improves user convenience and reduces the friction of ordering more food. In other words, it's more convenient.

Proven Pricing Capabilities

It is well known that Warren Buffett has come up with many brilliant ideas over the years. In this case, one idea in particular stands out. He once said

This has been most fully realized in the past few years. With inflationary pressures negatively affecting the restaurant industry, Chipotle has successfully raised menu prices several times to combat higher input costs. Nevertheless, revenue continued to grow at a double-digit rate as foot traffic increased. This is another feature of Buffett's award.

Overvaluation as one of the reasons to avoid

While Chipotle is a great company that passes the Berkshire Qualitative Screening, investors can't ignore the variable that this stock should be avoided like the plague. I'll say. Yes.estimationThe

The stock continues to hold a 29% gain this year through mid-April, demonstrating investors' high level of optimism about the company. Of course, it helps that Chipotle continues to release quarterly financial results that exceed expectations.

However, the stock is very expensive right now. You can buy the stock at a P/E ratio of about 67, which is getting to be "eye-popping." The P/E ratio reflects a bullish outlook for Chipotle. Even if you believe that management can deliver on the exist North AmericaSetup7000 Stores(used form a nominal expression) The long-term goal (and I think it can be done) is that the margin of safety is still zero.

Warren Buffett will never overpay for a stock. While Chipotle may be worth adding to his watch list, I don't think he's going to buy the company anytime soon, and you probably don't want to either.

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American Express is an advertising partner of The Ascent, a division of The Motley Fool. John Mackey, former Chief Executive Officer of Whole Foods Market, an Amazon subsidiary, is a member of the Board of Directors of The Motley Fool. Neil Patel and his clients have no positions in any of the stocks mentioned above. the Motley Fool owns shares of, and recommends, Amazon, Apple, Berkshire Hathaway, and Chipotle Mexican Grill. the Motley Fool has a disclosure policy. The Motley Fool has a disclosure policy.

3 Reasons Warren Buffett Might Love Chipotle Stock, and 1 Reason He'll Avoid It Like the Plague was originally published by The Motley Fool.