I started a 2% position in Chipotle this morning. I also boosted my Meta and Trade Desk stakes by 6% and 4%, respectively.

I mostly used cash on hand to fund the purchases, but didn’t want to drain the finite cash pile as much as the transactions would have on their own. For this reason, I trimmed a small piece of my PayPal stake (about 8%). As I’ve said in recent updates, total fintech exposure is a bit too large for me right now, and I am still a little nervous about the EU targeting PayPal and U.S. payment providers as part of trade talks. SoFi, Nu and Lemonade do not deal with this same risk. The EU can do the same thing to Meta, but I’m more confident in Meta’s fundamental momentum overcoming tighter regulations there — like it has for years.

As another reminder, in addition to the 1.5% cash position you see below, I have cash equal to 4.5% of my portfolio available to deploy from my emergency savings cushion. That makes a 6% cash position in total, although that 4.5% piece is in case of emergency (ie incredible opportunity). As I’ve said many times, I ideally will not use it. We shall see. The 4.5% rose from 4.0% since the last update due to very small deposits and the portfolio modestly declining in value.

As a quick review, I split my investing niche into two buckets. First is high-growth disruptors with decades of runway and rising margins. Duolingo and Zscaler are good examples of this. On the other hand, I also love investing in world-class brands and established companies experiencing temporary headwinds and significant pullbacks. I flock to companies prematurely proclaimed as decaying or punished by exogenous macro headwinds that won’t persist. Chipotle is in that second bucket.

I have been waiting to own CMG for several years and the multiple is at a point where I feel comfortable taking my first bite (pun intended). Certainly not cheap. But cheap enough in my mind. While I generally don’t like to make moves right before an earnings report, I am ready to own a piece of this at 26x forward EBITDA and 35x forward earnings or a 1.9x PEG ratio. While the PEG is elevated, that is generally the case for the highest-quality names with the highest probability of visible profit growth. Companies like Chipotle or Costco or Visa just don’t trade at 1X PEG ratios. If I waited for that, I’d never stop waiting. Still, that somewhat elevated multiple is why the initial purchase is somewhat small; I’d welcome the chance to keep adding if the multiple keeps contracting.

I love the quick-service restaurant niche and think the affordable luxury bucket will fare better than all other parts of consumer discretionary. I am increasingly gravitating to food over clothing for additional exposure to this broad category. Tastes do not change as quickly or unpredictably as they do in fashion, people need to eat every day, and bellwether brands tend to have more staying power.

This is a market share-taking darling, that has just begun expansion beyond Canada and the USA. It is in the “wonderfully boring compounder machine” cohort. While I do think Brian Niccol is a big loss for CMG (why I own Starbucks), I also think Scott Boatwright is a highly capable replacement. He spent a decade with Arby’s successfully climbing that ladder before spending 8 years as Niccol’s COO and right-hand man. He understands exactly what works and has vowed not to change much. All of this diminishes the execution risk — in my opinion. General manager turnover has continued to tick lower since Niccol left and throughput continues to consistently rise (which raises the average unit volume ceiling and service scores). Two great signs of more elite execution. If it ain’t broke… don’t fix it.

2025:

In an admittedly tough backdrop — and likely based on some initial annual guidance prudence — it will still deliver nearly 5% Y/Y comparable restaurant sales growth and better than 10% Y/Y revenue growth. It should find easier comps and a reacceleration thereafter to get back to ~13% revenue compounding and high-teens profit compounding.

This 2025 growth is also despite a 4-point headwind from weather, a later return to work/school and the LA wildfires, which led to negative Y/Y transaction growth in January. None of those items are at all structural. Chipotle’s decision to absorb all tariff impacts (more later) should make the demand guide relatively safe, barring an economic collapse. It assumed the few weeks of volatile traffic patterns seen heading into 2025 would continue in the guidance, so I think there’s a reasonable margin for safety on the demand side.

From a profit point of view, there are a few things temporarily holding back growth right now. First, the volatile volume trends cited above do impact fixed cost leverage and profitability. It’s also lapping larger portion investments (following a bit of consumer pushback), which is hitting margins by about 60 basis points (bps; 1 basis point = 0.01%). Finally… tariffs. Chipotle is one of the few companies that has been able to provide tangible, concrete guidance on the tariff impacts around the globe. We have uniquely good visibility here, which is so appreciated.

For the full year, new tariffs (in their current state) will lower margins by a modest 60bps. This news came after their initial annual guidance and represents a relatively modest 4.5% hit to full-year profit targets. So if this isn’t at all baked in… 37x forward EPS instead of 35x forward. Really not that bad for a blue chip darling that is already 35% off highs and nearing multi-year lows for forward multiple. And just like for Cava, Chipotle’s decision to flex its balance sheet muscle and absorb this impact should accelerate share gains vs. everyone else while times remain difficult. It’s the right decision.

Quantitative Data & Prospects:

Looking ahead, Chipotle is at the very beginning of its international journey. I think this food can work very well across Western Europe and the Middle East (like it has very early on so far). They just entered Mexico, where I think the odds of success are lower than other parts of the globe, but so far so good everywhere. I think Chipotle can lean on partners (like in the Middle East) to make this expansion less asset-heavy and risky. The growth runway remains long in the continental USA, but it’s truly massive everywhere else.

Stores should continue to get more and more productive, as a larger portion of them use its “Chipotlelanes” (80% of new stores have them) and the margin ceiling is higher as robotics equipment like its “autocado,” produce slicers and new grills help make employee lives easier and more productive. Whether it’s perfecting digital throughput, optimizing stores and the loyalty program, expanding to new markets or investing in technology to create better workflows, the runway for operational improvement is long. I refrained from including this potential upside in the simplistic modeling section seen below, but I do think that’s a reasonably likely source of outperformance.

Brief Risks to the Bull Case Ranked in order of Likelihood:

Overly Simplistic Modeling:

At a 2% position, I have plenty of room left to add into weakness. While I am more optimistic about Chipotle’s 2025 than most other companies, it is still entirely possible that we see lower lows and better deals before Mr. Market starts to cooperate. Any pressing issues for this firm will very likely be born from macroeconomic deterioration, rather than its own missteps. And either we avoid that macroeconomic chaos and it benefits, or we endure it, the company survives it and is poised to exit it stronger.