Is Chipotle Stock a Buy After Its Second-Quarter Earnings?

Key Points

• Revenue and earnings growth has slowed dramatically amid rising competition and a sluggish economy.

• As growth slows, investors may question the premium valuation Chipotle has commanded historically.

• Chipotle's prospects for long-term expansion continue to appear promising.

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Chipotle Mexican Grill (NYSE: CMG) failed to unwrap a strong earnings report when it released its earnings for the second quarter of 2025. The burrito giant experienced a dramatic slowdown in growth, a concerning sign as it has historically commanded a premium valuation.

This situation leaves investors in a difficult position. Former CEO Brian Niccol left the company last year to join Starbucks. Although its previous COO, Scott Boatwright, has run the company since then, the verdict is likely still out on his tenure.

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Chipotle continues to grow as it adds locations, so long-term shareholders have no apparent reason to sell their shares. The question is whether investors should add shares, or is it best for them to stay on the sidelines?

Image source: Getty Images.

Chipotle's Q2 results

In the second quarter of 2025, Chipotle generated $3.1 billion, representing a 3% year-over-year increase. That included a 4% decrease in comparable restaurant sales. Hence, revenue grew only because Chipotle added 309 restaurants over the last year, taking the count to 3,839 as of June 30.

Unfortunately, these results stand in contrast to Q2 2024, when revenue grew by 18%. The company attributed the decline to negative consumer sentiment and rising competition.

In Q2 2025, net income was $436 million, decreasing by about 4% annually. Increases in operating costs, particularly labor, occupancy, and other expenses, weighed on profit growth.

Moreover, while investors expected the slowdown, its revenue numbers fell short of estimates. That may partially explain why the stock fell 13% after the release. It has also fallen by one-third since reaching its all-time high in June of last year.

Why investors should be concerned

Admittedly, even the best growth stocks experience significant retrenchments when on a long-term growth trajectory. Investors often treat such occasions as a buying opportunity, and they have a strong argument for such thinking. The stock is up by more than 5,000% since its 2006 IPO.

CMG data by YCharts

Additionally, its massive footprint may be just the beginning of its growth. Chipotle believes it can grow to 7,000 restaurants in North America alone. Also, it has begun to establish a presence in three European countries and the Middle East, dramatically increasing its growth potential.

Despite its long-term growth, Chipotle's valuation may have made the stock particularly vulnerable. Its 40 P/E ratio is not unusual,, as it has long sold at a premium.

Still, with profit growth nearly at a standstill, investors could start to question why they would pay a premium for this stock. If the P/E ratio fell to the 20 range, that in itself would take the stock price down by approximately half. Furthermore, since Chipotle is not a dividend stock, investors may question whether it pays to own this stock under such conditions.

Should investors buy Chipotle stock after its Q2 earnings?

Given the current state of Chipotle stock, investors should probably refrain from adding shares at this time.

Indeed, Chipotle is one of the most successful restaurant stocks in history. That alone likely makes it a hold for long-term investors.

Unfortunately for shareholders, investors have little incentive to purchase the stock just now. Competition and a sluggish economy have so significantly impacted sales that it now relies entirely on the rapid expansion of its footprint for revenue growth.

Moreover, investors do not collect a dividend, meaning they rely on the stock beating the S&P 500 index to win with holding Chipotle. Thanks to tepid revenue and profit growth, investors no longer have an incentive to pay over 40 times earnings, making near-term pain for the stock more likely.

Chipotle remains on track for a massive expansion assuming its restaurants continue to succeed abroad. Nonetheless, the slowdown in growth bodes poorly for its stock in the short term. Until its valuation aligns more closely with its growth rate, it is probably not worthwhile for investors to buy more 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 September 2025 $60 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.