Why Chipotle Mexican Grill (CMG) Stock is a Compelling Investment Case

Pershing Square Capital Management recently released its Q2 2020 Investor Letter, a copy of which you can download here. The fund posted a return of 28.9% during the first half of 2020, outperforming its benchmark, the S&P 500 Index which returned -3.1% in the same period. You should check out Pershing Square’s top 5 stock picks for investors to buy right now, which could be the biggest winners of the stock market crash.

In the said letter, Pershing Square highlighted a few stocks and Chipotle Mexican Grill Inc (NYSE:CMG) is one of them. Chipotle Mexican Grill Inc (NYSE:CMG) owns and operates quick serve Mexican restaurants. Year-to-date, Chipotle Mexican Grill Inc (NYSE:CMG) stock gained 57.9% and on August 28th it had a closing price of $1,301.51. Here is what Pershing Square said:

“Chipotle’s outstanding performance this year has been driven by its successful business transformation led by CEO Brian Niccol and his team, who have made Chipotle one of the best performing restaurant brands globally, with 52% year-to-date stock price appreciation. Digital access has been a pillar of management’s strategy, fueling double-digit same-store sales growth in 2019, and enabling the brand to return to growth only three months after the onset of Covid-19 in the U.S.

Following a very strong start to the year, with same-store sales up 12% to 13% in January and February, Chipotle’s same-store sales bottomed at negative 35% in late March, as states implemented stay-at-home orders and dining room closures. Management quickly responded by reallocating marketing dollars and refocusing the organization on digital pickup and delivery.

Management’s rapid response has caused the company’s digital sales mix to increase from just under 20% of sales at the end of 2019, to a peak of 70% of sales in April, moderating to nearly 50% of sales in July, as states have reopened. These digital sales gains have proved to be resilient, with Chipotle retaining 70% to 80% of digital sales gains while recovering 40% to 50% of in-store sales as of July. The combination of triple-digit digital sales growth and a gradual recovery of in-store sales has enabled Chipotle to return to mid-single-digit, positive same-store-sales growth in July, an exceptional result in the current environment for a brand that did not previously derive a majority of sales from drive-thru or delivery.

Management is confi dent that Chipotle will emerge even stronger once the Covid-19 crisis is over. Unit growth should accelerate in 2021 as competition for high-quality locations has decreased, with Chipotlanes, the company’s high-return, digital drive-thru format incorporated into most new restaurants going forward. Management has reiterated its medium-term goals of: (1) $2.5 million in average restaurant sales, up from $2.2 million today, (2) corresponding restaurant-level margins of 25%, and (3) a long-term goal of more than doubling the current number of Chipotle restaurants in the U.S. The key levers to achieve this growth are already in place including digital access initiatives, the Chipotle Rewards loyalty program – which has become a highly eff ective tool for personalized marketing that has seen enrollment grow 75% this year to nearly 15 million members – and a robust menu innovation pipeline, with popular new items in trial including caulifl ower rice and quesadillas.”

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Susan Law Cain / Shutterstock.com

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

At Insider Monkey we scour multiple sources to uncover the next great investment idea. Federal Reserve has been creating trillions of dollars electronically to keep the interest rates near zero. We believe this will lead to inflation and boost precious metals prices. So, we are checking out this junior gold mining stock.. We go through lists like the 10 most profitable companies in America to pick the best large-cap stocks to buy. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. If you want to find out the best healthcare stock to buy right now, you can watch our latest hedge fund manager interview here. You can subscribe to our free enewsletter below to receive our stories in your inbox:

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