Better Growth Stock to Buy Now: Chipotle or Texas Roadhouse?

Key Points

• Both stocks have sold off sharply.

• Chipotle's latest quarter showed declining comparable restaurant sales.

• Texas Roadhouse posted healthy traffic-driven comparable restaurant sales and trades at a lower price-to-earnings multiple.

• 10 stocks we like better than Chipotle Mexican Grill ›

Shares of Chipotle Mexican Grill (NYSE: CMG) and Texas Roadhouse (NASDAQ: TXRH) have stumbled in recent weeks, likely prompting some investors to take a closer look at their stocks to see if their sell-offs are buying opportunities. The fast-casual burrito specialist's stock has been crushed this year, declining about 35%, while the steakhouse's stock is down 5% year to date and 20% from its 52-week high. Despite the market's negative sentiment toward these stocks, both companies continue to expand units at a healthy clip and remain household names with loyal followings.

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A great brand with disappointing near-term trends

Chipotle's second quarter added to concerns about the company's recent slowdown. Revenue rose 3% year over year to roughly $3.1 billion, but comparable restaurant sales fell 4% as transactions declined about 5%, only partially offset by a higher average check. Restaurant-level operating margin slipped to 27.4%, and earnings per share ticked down modestly.

On a positive note, management opened 61 restaurants in the quarter, with 47 including a Chipotlane. Further, the company continues to target 315 to 345 openings in 2025, most with drive-thru pickup lanes (Chipotlanes) -- a proven traffic and margin driver. On the outlook, Chipotle CEO Scott Boatwrite guided to about flat comparable sales for the full year, citing "ongoing volatility in our trends in the consumer environment." Despite these short-term issues, Boatwright ultimately struck a constructive tone in Chipotle's second-quarter earnings call, noting momentum building with summer marketing and menu innovation and easing year-over-year comparisons.

Even after a steep year-to-date decline, Chipotle still trades at a higher price-to-earnings multiple than many full-service peers. As of this writing, the stock's price-to-earnings multiple is 35. Shares have been under steady pressure, now down roughly a third this year and more than 40% below their 52-week high. Management did respond by adding $500 million to the buyback authorization in mid-September, signaling confidence and creating flexibility to repurchase shares at lower levels. But a premium valuation paired with flat comp guidance leaves less room for error if traffic remains choppy.

Better growth and a more attractive valuation

Texas Roadhouse delivered a more upbeat growth update. In its second quarter, revenue increased 12.7% to about $1.5 billion, comparable sales at company restaurants rose 5.8%, and earnings per share grew 4% to $1.86. Restaurant margin dollars climbed, though restaurant margin rate eased to 17.1% as beef and labor inflation weighed on profitability.

Notably, the company continues to benefit from positive traffic across all three brands (Texas Roadhouse, Bubba's 33, and Jaggers).

"Our operators delivered another quarter of strong comparable restaurant sales growth driven by positive traffic," CEO Jerry Morgan said, while flagging that commodity inflation will pressure profitability through the rest of the year.

Management also reiterated store-week of about 5% for 2025 (this means Texas Roadhouse's total restaurant base, weighted by how long each location is open, will increase about 5% compared with 2024).

Unlike Chipotle, Texas Roadhouse also pays investors a nice dividend. The stock currently has a dividend yield of about 1.7%.

Shares have pulled back since summer as investors digested higher beef inflation and near-term margin pressure; however, the underlying demand story -- positive traffic and mid-single-digit comps -- remains intact.

The verdict

Both companies are expanding and investing through the cycle. But for investors weighing growth and valuation side by side, Texas Roadhouse offers the more attractive setup. Comps are rising on traffic rather than pricing alone, unit growth remains disciplined, and the stock trades around a mid-20s price-to-earnings multiple -- a noticeable discount to Chipotle's mid-30s. That valuation gap matters when one business (Texas Roadhouse) is growing guest counts while the other (Chipotle) is guiding to roughly flat comps for the year.

Of course, elevated beef costs could continue to pressure Texas Roadhouse's margin until supply normalizes. And another risk for the restaurant is the economy. If the economy worsens, customers could reduce their dining budgets.

But there are risks for Chipotle, too. For instance, transaction softness and a cautious comp outlook could persist longer than expected -- particularly if consumers remain price sensitive.

Ultimately, Texas Roadhouse looks like the clear winner. Chipotle is a stellar brand with a long runway, and the recent buyback increase is supportive, but the combination of flat comp guidance and a premium valuation tilts the advantage to Texas Roadhouse at today's prices.

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Daniel Sparks and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Texas Roadhouse. The Motley Fool recommends the following options: short September 2025 $60 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.