Chipotle Mexican Grill (CMG) Has Risen 64% in Last One Year, Outperforms Market

If you are looking for the best ideas for your portfolio you may want to consider some of Pershing Square Capital Management’s top stock picks. Pershing Square, an investment management firm, is bullish on Chipotle Mexican Grill Inc (NYSE:CMG) stock. In its Q2 2019 investor letter – you can download a copy here – the firm discussed its investment thesis on Chipotle Mexican Grill Inc (NYSE:CMG) stock. Chipotle Mexican Grill Inc (NYSE:CMG) owns and operates quick serve Mexican restaurants.

On August 13, 2019, Pershing Square had released its Q2 2019 investor letter. The investment firm said that Chipotle Mexican Grill Inc (NYSE:CMG) was one of the biggest contributors to its performance for the first six months of 2019. The stock has posted a return of 63.7% in the trailing one year period, outperforming fund’s benchmark the S&P 500 Index which returned 21.0% in the same period. This suggests that the investment firm was right in its decision. On a year-to-date basis, Chipotle Mexican Grill Inc (NYSE:CMG) stock has risen by 63.9%.

Last month, we published an article revealing Pershing Square’s bullish investment thesis on Chipotle Mexican Grill Inc (NYSE:CMG) stock in its Q2 2020 investor letter. This suggests that the investment firm has been bullish for a long time on Chipotle Mexican Grill Inc (NYSE:CMG).

Pershing Square fund posted a return of 45.3% during the first half of 2019, outperforming fund’s benchmark the S&P 500 Index which returned 18.5% in the same period. Let’s take a look at comments made by Pershing Square about Chipotle Mexican Grill Inc (NYSE:CMG) in the Q2 2019 investor letter.

“CMG has appreciated 89% this year, making it the top performing stock in the S&P 500 index, more than doubling in value since we made our initial investment three years ago. While year-to-date results have been impressive, management emphasized throughout the second quarter call that the company is in the early stages of many of their key growth initiatives and that this was “just the beginning.”

Chipotle reported another outstanding quarter as solid execution on management’s strategic growth initiatives continues to drive improved business fundamentals. Same-store sales grew 10% in the second quarter, consistent with first quarter growth despite a more challenging prior year comparison. Transaction growth of nearly 7% was industry-leading by a wide margin, as guests continued to respond to new marketing initiatives and more convenient ways to access the brand, including pickup and delivery of digital orders.

Digital sales doubled once again and now account for 18.2% of sales, up from 15.7% of sales in the first quarter. Management raised full year 2019 same-store sales guidance for the second time this year to high-single-digit growth from mid-to-high single-digit growth. Robust sales growth is translating into improved profitability, with restaurant margins up 120 basis points year-over-year in the second quarter to just under 21%, roughly in-line with the first quarter’s levels despite a 150-basis point sequential headwind from higher avocado prices which are expected to abate.

While management’s growth strategy is already having an impact, most key initiatives are in their early stages. Digital sales mix exceeds 30% at top performing stores, more than 12 percentage points higher than the system average. Catering remains a relatively small piece of the business and therefore a tremendous growth opportunity as it accounts for a double-digit percentage of sales at other restaurant brands. The Chipotle Rewards loyalty program is only five months old and already has over five million enrolled members. Efforts to use the program’s data to incentivize higher guest frequency are still in their infancy.

Menu innovation should ramp up in the coming quarters, as management is preparing for a potential national launch of carne asada, and has received favorable customer feedback from its quesadilla pilot. While operations have improved significantly, including a notable reduction in employee turnover, there is still a significant opportunity to increase speed of service, which remains nearly 30% below historic best-in-class levels. Management’s extensive pipeline of growth initiatives combined with Chipotle’s highly attractive customer value proposition gives us confidence that the company should continue to generate superior levels of sales and profit growth.”

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In Q1 2020, the number of bullish hedge fund positions on Chipotle Mexican Grill Inc (NYSE:CMG) stock remained unchanged from the previous quarter (see the chart here). Our calculations showed that Chipotle Mexican Grill Inc (NYSE:CMG) isn’t ranked among the 30 most popular stocks among hedge funds.

The top 10 stocks among hedge funds returned 185% since the end of 2014 and outperformed the S&P 500 Index ETFs by more than 109 percentage points. We know it sounds unbelievable. You have been dismissing our articles about top hedge fund stocks mostly because you were fed biased information by other media outlets about hedge funds’ poor performance. You could have doubled the size of your nest egg by investing in the top hedge fund stocks instead of dumb S&P 500 ETFs. Below you can watch our video about the top 5 hedge fund stocks right now. All of these stocks had positive returns in 2020.

Video: Top 5 Stocks Among Hedge Funds

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Disclosure: None. This article is originally published at Insider Monkey.