Chipotle Mexican Grill's (CMG) Strong Relative Performance Amid Mixed Earnings Outlook

Chipotle Mexican Grill (CMG) has outperformed the broader market in recent months, with its stock rising on optimism about its Chipotlane innovation and expansion plans. Yet, as the company navigates a challenging industry environment and softening earnings forecasts, investors must ask: does this outperformance justify its premium valuation and elevated PEG ratio?

Valuation Metrics: A Tale of Two PEG Ratios

Chipotle's valuation appears contradictory. As of November 2025, its PEG ratio stood at 4.83, calculated by dividing a P/E ratio of 27.07 by an EPS growth rate of 5.61% over the trailing 12 months. This suggests the stock is significantly overvalued relative to earnings growth. However, by December 2025, a different metric emerged: a PEG ratio of 0.77, derived from a P/E of 26.37 and a 5-year EBITDA growth rate of 34.10%. This latter figure implies undervaluation, highlighting the sensitivity of valuation metrics to the chosen growth metric and time frame.

The discrepancy underscores a critical question: is Chipotle's earnings growth slowing, or is the market anticipating a rebound in EBITDA? The trailing twelve months (TTM) EPS of $1.14 as of September 2025 reflects a 25.8% annualized increase compared to 2024, but Q3 2025 earnings of $0.29-while meeting consensus-suggest a deceleration. Mizuho's Q4 2025 EPS estimate of $0.24 aligns with this trend, while its 2026 forecast of $1.16 (down from $1.18 previously) indicates cautious optimism.

Strategic Expansion vs. Operational Headwinds

Chipotle's 2025 guidance includes opening 315–345 new company-owned restaurants, with over 80% featuring the Chipotlane, its automated kitchen system. This expansion, coupled with plans to open 350–370 new locations in 2026, signals confidence in the model. However, the company has not offset rising costs: tariffs enacted since April 2025 are expected to increase food, beverage, and packaging expenses by 50 basis points. Meanwhile, comparable restaurant sales are projected to decline in the low-single-digit range for 2025, a stark contrast to the 2023–2024 growth that fueled investor enthusiasm.

The company's pricing strategy further complicates the outlook. Chipotle has adopted a "gradual" approach to menu price increases to preserve its value proposition, even as inflationary pressures persist. This strategy may limit short-term margin expansion but could protect customer loyalty in a competitive market.

Industry Context and Investor Implications

The broader restaurant industry faces headwinds, including labor shortages and shifting consumer preferences. Chipotle's focus on automation and digital innovation positions it to outperform peers, but its recent earnings guidance suggests growth is plateauing. The mixed PEG ratios reflect this duality: the 4.83 figure warns of overvaluation based on near-term earnings, while the 0.77 ratio implies the market is discounting long-term EBITDA growth potential.

For long-term investors, the key question is whether Chipotle's expansion and operational efficiency gains can reignite earnings growth. The projected 18.6% increase in EPS from $1.29 to $1.53 by 2026 would be a welcome reversal, but achieving this will require navigating cost pressures and stagnant sales.

Conclusion: A Cautionary Buy?

Chipotle's stock has justified its outperformance through strategic innovation and disciplined expansion. However, the elevated PEG ratio of 4.83, combined with softening EPS estimates and a weak industry backdrop, raises concerns about near-term overvaluation. The 0.77 PEG ratio offers a counterpoint, but it relies on assumptions about EBITDA growth that may not materialize.

Investors should approach CMG with caution. While the company's long-term potential remains intact, the current valuation appears stretched relative to near-term fundamentals. A pullback in the stock price-triggered by a clearer earnings slowdown-could create a more attractive entry point. Until then, the premium valuation demands a high degree of confidence in Chipotle's ability to execute its transformational strategies.