Beloved restaurant chain Chipotle Mexican Grill (CMG 1.23%) has gotten a reputation for serving up delicious flavors and hot investment returns. The stock has returned nearly 6,000% over its lifetime, far exceeding the S&P 500‘s corresponding performance.

However, shares have cooled off lately after Starbucks lured away the company’s popular CEO. Strong leadership is crucial for companies to perform up to their potential, so it’s certainly a loss that Chipotle will have to deal with.

However, the stock’s recent decline might be more of an indicator of a buying opportunity than a red flag to sell. Chipotle has the growth recipe and the opportunities to produce big-time investment returns — if the company’s new CEO can continue where Brian Niccol left off.

Here is what you need to know regarding the investment direction for Chipotle right now.

Chipotle’s CEO shake-up is probably not a big deal

Nobody should diminish the positive impact of the former CEO. After Niccol took on the CEO role in early 2018, sales more than doubled, and earnings multiplied:

CMG revenue (TTM) data by YCharts; TTM = trailing 12 months.

Niccol came to Chipotle as the former CEO of Yum! Brands-owned Taco Bell, a competitor with over 7,000 stores at the time. When he took over, Chipotle had just 2,400 stores.

Consumers have long loved Chipotle, but growing the business goes beyond that to areas like the supply chain. Given the company’s success, Niccol did a great job leading Chipotle to higher ground. Today, the company has approximately 3,530 stores.

That said, investors shouldn’t panic that he is gone now. Chipotle’s founder, Steve Ellis, resigned as CEO in late 2017 and left the company in 2020. The business has been just fine anyway.

In other words, Niccol did a great job driving the car, even if he didn’t build it. Chipotle is an established brand with a successful playbook. The building phase is relatively complete. As long as Chipotle’s new CEO adheres to the company’s core values and successful formula, investors should be just fine.

Long-term growth ahead

What is Chipotle’s formula? It’s a straightforward business that sells fresh, made-to-order meals at an attractive price. Sure, the restaurant business is ruthlessly competitive, but it hasn’t eaten into the chain’s growth:

CMG revenue (quarterly YoY growth); data by YCharts. YoY = year over year.

People know the brand and enjoy the product. Growth comes from opening more stores. Chipotle is now international, but the United States remains the core market. All markets eventually get crowded, but the U.S. shouldn’t reach that point for a while.

The company’s 3,530 stores still pale compared to others, including Taco Bell, with almost 8,000 in the U.S. alone. The country’s top 10 restaurant chains all have more than 3,000 more locations than Chipotle does.

Earnings should continue growing faster than sales because Chipotle uses its profits to repurchase shares, driving higher per-share growth and a higher share price. This lucrative recipe for tasty returns should remain intact with new leadership.

Is the stock a buy, sell, or hold?

Chipotle’s simple but lucrative business model, its growth, and its well-known brand command a steep valuation. The stock trades at a forward price-to-earnings ratio (P/E) of 49, even with shares sitting more than 20% off their high.

The question is whether Chipotle can grow fast enough to justify a long-term investor buying shares at these prices. Analysts believe the company will grow earnings per share by an average of 22% annually for the next three to five years.

That growth makes the stock seem pretty reasonable today. Consider that Coca-Cola, a similarly beloved consumer-facing company, trades at a forward P/E of 25 today but is only expected to grow earnings by 6% annually. In other words, Chipotle is more expensive than other stocks, but you’re probably getting far better earnings growth.

A long-term investor also has the benefit of time; you can hold shares and let earnings catch up to the share price in a year or two. Chipotle isn’t a bargain, but it’s priced reasonably enough that investors can buy this dip and prepare to continue averaging down if the stock keeps falling. The company’s CEO shake-up has created a solid buying opportunity that investors should consider taking advantage of.