Chipotle and McDonald's have been on Wall Street's radar for the last couple of weeks following the release of their fourth-quarter financial reports. Chipotle easily surpassed analysts' expectations, while McDonald's missed them. As a result, the two stocks moved in opposite directions: Chipotle shares headed north, while McDonald's shares headed south.
But Chipotle's shares trade with a forward PE more than twice that of McDonald's (49 vs 23). In addition, according to Gurufocus.com, McDonald's has a higher Economic Value Added (EVA) rate than Chipotle (12.58% vs 8.86%). A higher EVA means McDonald's allocates capital more effectively than Chipotle, creating more shareholder value.
These diverse financial metrics complicate the assessment of the long-term prospects of the two stocks on Wall Street, dividing experts as to which company offers better value for long-term investors.
Avis Berg, CIO at Berg Capital Alex, thinks the choice between the two popular brands depends on the investor's profile.
"Consider your investment goals and risk tolerance. If you're seeking higher growth potential and are willing to accept higher volatility, Chipotle may be a better choice. But McDonald's could be preferred if you prioritize stability, a long history of dividends, and a more diversified revenue stream. Diversification within your portfolio is also crucial, so consider how either stock aligns with your overall investment strategy," he told International Business Times.
Alex Adekola, CEO and founder of Ready Adjuster, sees Chipotle as having better growth potential than McDonald's as it continues expanding and innovating its menu.
"The company is still in the early stages of growth with under 3,000 locations globally," he told IBT. "Its focus on high-quality ingredients and customization makes it stand out from traditional fast-food chains. Chipotle's digital investments have also paid off, with digital sales accelerating sharply during the pandemic. If it can maintain strong unit economics while expanding, Chipotle should be able to grow revenues at a 20%+ clip for many years," Adekola said.
Nonetheless, he, too, sees McDonald's as suitable for long-term investors looking for investments with steady cash flow and high dividend payouts. "While its growth has stagnated in recent years, McDonald's generates tons of cash flow and has a strong dividend that it can use to reward shareholders," Adekola said, adding, "McDonald's scale and real estate also give it an advantage... Owning both provides a balance of growth and stability."
Kraig Kleeman, an entrepreneur and author, agrees. "Diversifying your portfolio with a mix of steady and high-growth stocks can be an intelligent strategy," he stated. "It's like having a balanced diet—some days, you go for the salad, and other days, only a Big Mac will do."
Jon Morgan, CEO of VentureSmarter, leans toward Chipotle as it is strategically positioned to ride the evolving fast-food landscape. "The contemporary consumer is increasingly health-conscious and values transparency in sourcing," he told IBT. "Chipotle has effectively tapped into this trend by offering high-quality, customizable meals made from fresh, often locally sourced ingredients."
Morgan sees this commitment to quality and sustainability perpetuate Chipotle's growth, something missing from McDonald's performance. "While McDonald's has its own merits, the shifting paradigm towards cleaner eating habits and the market's emphasis on quality ingredients make Chipotle a more compelling choice for long-term investment," he added.
Disclosure: The author owns shares of McDonald's
