Chipotle (NYSE: CMG) has received considerable help from an unexpected area -- the technology industry. The company launched an enhanced digital ordering app in 2017, and artificial intelligence (AI) and robotics are playing an increasingly important role in the ordering process.
As a restaurant stock, Chipotle is far removed from the goals of an Nvidia or a Microsoft. Nonetheless, the case for treating Chipotle like a tech stock may not seem as crazy as it might appear. Here's why.
Chipotle and technology
As a company, Chipotle would probably not be where it is today without technology. The aforementioned ordering app allowed customers to place orders from a device such as a smartphone and pick them up at a restaurant.
This was fortuitous when the pandemic led to a near shutdown of the restaurant industry in 2020. Not only did Chipotle report modest revenue growth that year, but it also avoided the massive sales reductions and closures that hit most of its restaurant industry peers.
Also, the platform has become a mainstay at Chipotle. As late as the first quarter of 2024, digital sales represented almost 37% of its food and beverage revenue.
More recently, it has been working with a company called Hyphen to integrate AI and robotics into its processes. The company is experimenting with a digital makeline that would automatically put together customer orders in a sort of assembly line process.
Additionally, it is developing a robot called Autocado that cuts, cores, and peels avocados before a human mashes them by hand to make guacamole. Furthermore, Chipotle has also researched tech innovations in farming, supply chain management, alternative proteins, and other areas.
Admittedly, most of these advancements remain in the development stage. However, if Chipotle can reduce costs while positively affecting the customer experience, it should build on its existing competitive advantage thanks to this technology.
But does the technology make Chipotle a buy?
Unfortunately for investors, it may be hard to capitalize on Chipotle stock precisely because of this technology. Since its digital platform has become a major sales channel, those benefits are likely already factored into the stock price.
Moreover, as mentioned before, the digital makeline and Autocado are still developing. If successful, they could reduce the need for labor, an input that has become increasingly expensive for Chipotle in recent years.
Nonetheless, Chipotle still looks like a buy after the recent 50-for-1 stock split. For all of the challenges, it still offers a fast, healthy, delicious meal at a reasonable price.
Despite uncertainties in the macro economy, net income rose 23% yearly to $359 million in the first quarter of 2024. During that time, the company also increased the number of restaurants by 255, taking its total to approximately 3,500.
That growth may help explain why Chipotle stock rose 35% over the last year, even after a recent pullback. Also, with Chipotle's P/E ratio at 59, investors continue to pay earnings multiples reminiscent of those seen in the tech industry. The stock is also significantly below its five-year average P/E ratio of 76, meaning the elevated valuation is probably not going to deter investor interest.
Making sense of Chipotle stock
Ultimately, Chipotle is not a technology stock, and investors should not regard it as such. However, tech innovation has undoubtedly had a positive effect on Chipotle's results during and after the pandemic.
Additionally, investors should watch the company's robotics-oriented research with interest. If successful, this could reduce the cost of preparing meals, further increasing Chipotle's profits.
Indeed, investors will probably struggle to measure any positive effects of tech precisely. Nonetheless, tech-related innovations and a tech-like earnings multiple could define Chipotle stock for some time to come.
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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, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
