We recently compiled a list of the Jim Cramer’s 10 Go-To Stocks for Success. In this article, we are going to take a look at where Chipotle Mexican Grill Inc. (NYSE:CMG) stands against Jim Cramer’s other go-to stocks for success.
In a recent episode of Mad Money, Jim Cramer offers a perspective on Nvidia and its recent market behavior on Wednesday’s episode of Mad Money, presenting a straightforward analysis of the company’s stock performance and the broader implications for investors. Cramer notes that owning the company’s stock was easier when the company was less well-known. As the company has become a major market focus, it’s attracted significant attention and criticism, which is evident after its recent financial report.
“Once you get this big, to the point where you become the focal point of the entire stock market, you’re going to have a target on your back. And that’s exactly what I think happened tonight to the stock after the firm reported a fine and dandy set of numbers. But fine and dandy is no longer enough for this incredible company.”
Despite reporting impressive numbers—122% revenue growth, a 152% increase in adjusted earnings per share, and a $50 billion buyback— the firm’s stock fell after hours. This reaction reflects high expectations that may have become unrealistic. The stock market as a whole suffered due to pre-quarter jitters surrounding the company, with declines in major indices like the Dow, S&P 500, and Nasdaq Composite. The drop in the firm’s stock price after the earnings report, coupled with concerns about its influence on the broader market, has led some to call this period the GPU maker’s “buzzkill quarter.”
“The Dow declining 59 points was bad, the S&P losing 0.6%, and the Nasdaq Composite 1.12%. And now, with the stock sinking after hours, we could be in for a hangover from what they’re already calling the company’s buzzkill quarter. But the people saying this might as well be having a watch party—yes, there was one—but there’s nothing to celebrate here. Move on.”
Cramer emphasizes that the company’s role in artificial intelligence is significant, but its overemphasis has become a burden on the market. The company’s market capitalization has skyrocketed from around $500 billion to over $3 trillion in just 18 months. Cramer suggests that the company’s immense importance might be overblown and that a recalibration might benefit the market.
“We know that artificial intelligence is the way of the future, and it’s the best bet on AI. But the company has become an albatross around the market’s neck because no one stock should be a proxy for the future of the S&P 500. Yet, that’s exactly what’s happened as the company has grown from around $500 billion in market cap just 18 months ago to more than $3 trillion now. Maybe after tonight, it will shed that millstone—like Apple did. You know what? That would be a godsend for all of us.”
Cramer expresses frustration with how quickly concerns about the company have spread to the broader tech sector, although he acknowledges that companies like Salesforce reported positive numbers. Cramer concludes by advising investors to diversify their portfolios beyond just tech stocks. He suggests that while diversification might seem less exciting, it is a crucial strategy to mitigate risks associated with over-reliance on a single sector or stock.
“It felt like insult added to injury when there was no injury to the company. It will muddle through and recharge at its next iteration. Blackwell goes boring, and we see renewed expectations. I hope they don’t get excessive like they were tonight.”
Our Methodology
This article reviews a recent episode of Jim Cramer’s Mad Money, where he discussed ten stocks he believes have significant growth potential. It also looks at how hedge funds view these stocks and ranks them based on their level of hedge fund ownership, starting with the least owned and moving to the most owned.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A chef plating up a wide variety of dishes for a restaurant chain.
Chipotle Mexican Grill Inc. (NYSE:CMG)
Number of Hedge Fund Investors: 68
Chipotle Mexican Grill Inc. (NYSE:CMG) is a prominent leader in the fast-casual dining industry, known for its fresh, high-quality ingredients and customizable menu options. Chipotle Mexican Grill Inc. (NYSE:CMG)’s commitment to “Food with Integrity” attracts health-conscious customers, building strong brand loyalty and ensuring consistent traffic to its restaurants. This focus has solidified Chipotle Mexican Grill Inc. (NYSE:CMG)’s market position and financial performance.
Chipotle Mexican Grill Inc. (NYSE:CMG)’s investment in digital transformation has significantly boosted its success. In Q2 2024, digital sales made up nearly 40% of total revenue, thanks to the effective use of its app and website for delivery and pickup orders. Its loyalty program, with over 30 million members, enhances customer engagement, while advancements in automation, such as AI in kitchen operations, increase efficiency. Chipotle Mexican Grill Inc. (NYSE:CMG)’s financial results are strong, with Q2 2024 revenues reaching $2.51 billion—an increase of 13.6% from the previous year—driven by new store openings and a 7.4% rise in comparable sales. Chipotle Mexican Grill Inc. (NYSE:CMG)’s operating margin improved to 15.5% due to effective cost management and strong pricing power. Its earnings per share (EPS) of $12.65 exceeded expectations, highlighting its ability to handle inflationary pressures.
Looking ahead, Chipotle Mexican Grill Inc. (NYSE:CMG)’s expansion strategy is set for considerable growth. Chipotle Mexican Grill Inc. (NYSE:CMG) opened 53 new restaurants in Q2 2024 and plans to open between 250 and 285 new locations by the end of the year, including in suburban and smaller markets as well as internationally. The introduction of the Chipotlane drive-thru format further enhances customer experience and operational efficiency.
Innovation remains a core focus for Chipotle Mexican Grill Inc. (NYSE:CMG), with new menu items like Chicken al Pastor and seasonal offerings keeping the menu fresh and appealing. The recent “Farmers Market” campaign highlights its commitment to sourcing ingredients from local farmers, resonating well with consumers. Additionally, Chipotle Mexican Grill Inc. (NYSE:CMG)’s ongoing investment in digital and technology platforms, including AI and robotics, supports continued growth and operational improvements.
Pershing Square Holdings stated the following regarding Chipotle Mexican Grill, Inc. (NYSE:CMG) in its Q2 2024 investor letter:
“On August 13th, Chipotle Mexican Grill, Inc. (NYSE:CMG) announced that CEO Brian Niccol would be leaving the company to become the CEO of Starbucks. Brian has led a superb turnaround at Chipotle, which has put the company firmly on the path of sustainable long-term growth. While we are disappointed to see Brian go, one of the measures of a great CEO is the company that he leaves behind. Brian has built an extraordinary team at Chipotle that we expect will not lose a step in his departure. We are grateful to Brian for the extraordinary value he has created for CMG shareholders and Pershing Square.
Chipotle delivered outstanding results in the first half of 2024 as the brand’s industry-leading value proposition of fresh food, customization, and convenience at fair prices continues to resonate with customers. During the second quarter, same-store sales grew an impressive 11%, or 55% from 2019 levels. Successful marketing, including the return of the fan-favorite Chicken Al Pastor limited time offering, and faster throughput drove transaction growth of over 8%, with gains across all income cohorts. Although sales growth has moderated in the summer amid a broader deceleration in the restaurant industry, Chipotle continues to gain share. The launch of Smoked Brisket for a limited time starting in September, one of the company’s most requested menu items, should further improve trends….” (Click here to read the full text)
Overall CMG ranks 4th on our list of Jim Cramer’s go-to stocks for success. While we acknowledge the potential of CMG as an investment, our conviction lies in the belief that under the radar AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than the ones on our list but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.