Chipotle saw earnings increase 32% within the second quarter — however it has sputtered for the reason that big stock split.

Chipotle Mexican Grill (NYSE:CMG) stock was moving lower on Thursday though the fast food chain posted second quarter earnings that topped analysts’ estimates.

Chipotle’s revenue rose 18% to $3 billion within the quarter, ahead of the $2.94 billion estimate. Net income climbed 14% year-over-year to $815 million while earnings per share rose 32% to 33 cents per share, beating estimates of 32 cents per share.

The stock price initially skyrocketed 10% when earnings were released after the market closed on Wednesday. However the stock price began falling in pre-market trading Thursday and was down about 4% after the market opened to $50 per share.

Earnings fueled by recent restaurants, rise in same-store sales

The initial upward after-hours price movement was fueled by the solid earnings beat. The restaurant chain’s top line surge was driven by the opening of 52 recent restaurants within the second quarter, including 46 with a drive-through Chipotlane.

Revenue also spiked resulting from 11% increase in same-store sales, buoyed by an 8.7% jump within the variety of transactions, which is the number of shoppers in its restaurants. Chipotle also saw a 2.4% increase in the typical check, indicating individuals are paying more for the food.

Same-store sales growth was significantly higher in Q2 than it was in Q1, once they rose 7%, and Q4 2023, once they increased 8.4%.

Further, food, beverage and packaging costs, which is basically the fee of manufacturing the meals, was 29.4% of total revenue, similar to the second quarter of 2023. Also, general and administrative expenses rose 11% year-over-year to $175 million

The general operating margin increased to 19.2%, from 17.2% in the identical quarter a yr ago, while the operating margin on the restaurant level climbed to twenty-eight.9%, from 27.5% in Q2 of 2023.

“The second quarter was outstanding as successful brand marketing, including the return of Chicken Al Pastor, drove strong demand to our restaurants,” Brian Niccol, chairman and CEO at Chipotle, said. “Our focus and training around throughput paid off as we were capable of meet the stronger demand trends with terrific service and speed driving over 8% transaction growth within the quarter.” 

What caused Chipotle stock to maneuver?

The sharp decline in Chipotle stock likely may, partly, be resulting from its outlook, which stayed the identical for fiscal 2024. Chipotle is looking for comparable same-store sales growth for the fiscal yr to be within the mid-to-high single-digit range. The projected number of recent restaurants can be similar to past guidance.

The outlook can be a little bit slower than Q2 same-store growth, but on the other hand, this quarter, the numbers were higher-than-expected. There may be concerns related to projections for an overall slowdown in fast food sales. But Chipotle has proven to be an outlier, generating strong traffic while others have struggled.

It likely had more to do with Chipotle’s valuation. The market appears to be in a correction for stocks with high valuations, and Chipotle would qualify, especially after spiking 10% post-earnings.

Chipotle stock has been a juggernaut, rising 65% in 2023 and one other 11% thus far this yr. Its stock price soared to over $3,000 per share before a large 50-for-one stock split kicked in in late June. Now it’s trading at a more accessible $50 per share.

But Chipotle’s stock price has corrected since that June 26 stock split, down some 24% from $65 per share. Because of this, the P/E ratio has come right down to 50, from 65 in April. That continues to be high, so there could possibly be farther to fall.

Is Chipotle stock a buy?

There doesn’t seem like any fundamental issues with Chipotle, the truth is it’s growing rapidly. Debt has risen a bit on this growth period for Chipotle, in order that bears watching, but overall, it has been performing well.

The value correction might be thing for brand new investors in Chipotle stock. Chipotle has a median goal of $65, which might essentially gain back what it lost over the past three weeks.

So, watch the valuation, because it could dip a bit further. But overall, Chipotle stock looks like one to placed on your radar resulting from its rapid growth, particularly if the P/E drops a little bit lower.