In reaction to the successful roll-out of multiple vaccines to protect individuals against the COVID-19 pandemic, the Center for Disease Control and Prevention (CDC) revised its guidance. According to the CDC, fully vaccinated people are no longer required to wear masks. Coupled with the continued reopening of restaurants across the US, one would assume this represents a clear catalyst to certain restaurant stocks.
Let’s take a look at two of the more notable restaurant stocks in the sector that are underperforming the broader market. Shares of Chipotle Mexican Grill, Inc. (NYSE:CMG) are up just 2.8% since the start of 2021 and are actually down 12.5% over the past month.
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Meanwhile, shares of Shake Shack Inc (NYSE:SHAK) are up 1% since Jan. 1 but have lost around one-quarter of its value over the past month.
Chipotle’s exciting growth story
Shares of Chipotle trade at a high P/E ratio of 95.03. However, due to the expected earnings growth for the next 12 months, the company’s stock trades at a significantly better forward P/E ratio of 41.95. And when we factor in expected growth for the next five years, Chipotle’s PEG ratio of just 1.08 tells an even better growth story that lies ahead.
Chipotle has seen tremendous success in pivoting during the pandemic to focus on off-premise dining. In fact, the company’s late April earnings report showed that online orders exceeded in-person restaurant orders for the first time ever. One would expect the momentum to continue as Chipotle emphasizes its digital-first loyal customers.
The CDC’s mask update should give people more confidence in getting together in person and this could represent a catalyst to Chipotle’s catering initiatives.
Technically, shares of Chipotle appear to have found strong support around $1,362.00 after the latest pullback. There is also strong trendline support that could trigger the next rebound. Investors can target rebound profits around $1,425 and $1,503, or higher at $1,574.
Shake Shack back to profitability
Shake Shack was unprofitable for each of the four quarters in 2020. However, the company returned to profitability again in Q1 2021, and this could get even better with the CDC’s green light on masks as the government’s guidance will translate to increase confidence in going out. This could boost the stock price significantly. The company’s revenue grew by 8.5% in the most recent quarter and more growth can be expected in the coming years, especially as the company proceeds with an expansion drive, both in the US and internationally.
Technically, shares of Shake Shack appear to have recently bounced off the support level at $77.91. CDC’s announcement will continue to boost market optimism. This means that the current rebound in the price of Shake Shack could continue through next week and beyond.
Investors can buy at current levels and target short-term profits at $90.72, or long-term at $107.39 and $120.00.
Conclusion: get hungry for CMG and SHAK stock
In general, the CDC’s statement on masks will have a positive impact on several industries. This will have a good effect on the market as a whole, which means that now is a great time to invest. Restaurants will be among the stocks that benefit the most.