Chipotle Mexican GrillThe (NYSE: CMG) downturn continued to rise in the last quarter, as comparable sales growth accelerated due to higher digital sales. This growth allowed Chipotle to post an adjusted earnings per share of $ 1.72 for the fourth quarter, nearly 30% higher than the consensus of analysts.

It is not surprising that investors are looking forward to this big rise in profits. The chipotle stock jumped more than 11 percent Thursday, briefly surpassing $ 600 for the first time in more than three years.

CMG Chart

Performance of Chipotle shares, given by YCharts.

Chipotle's growing momentum and the many initiatives underway to boost sales should enable the fast-paced, early-stage pioneer to achieve strong earnings growth over the next few years. But without a new acceleration of the growth of its activities, Chipotle will have difficulty to show itself at the height of its high valuation.

An excellent end of the year

In the third quarter, Chipotle posted revenue growth of 8.6% on a 4.4% increase in same-store sales. Adjusted EPS jumped 62% from one year to the next, thanks to strict cost control.

However, skeptics were not impressed by these results, noting that same-store traffic fell by 1.1%. The increase in menu prices and larger orders, boosted by the addition of queso to the menu at the end of 2017, resulted in more than 100% of Chipotle's third quarter comp sales growth. . The fear was that these downwinds would dissipate in the fourth quarter, resulting in the Chipotle stock.

Chipotle proved that skeptics were wrong last quarter. Comps' growth accelerated to 6.1%, while traffic trends became significantly positive. (The number of transactions in comparable restaurants increased 2% during the quarter.) This performance contributed to an increase in total revenue of 10.4% to $ 1.2 billion.

Inside a Chipotle restaurant

Chipotle experienced strong growth in its comparable sales in the last quarter. Source of the image: Chipotle Mexican Grill.

While revenue growth accelerated in the fourth quarter, Chipotle's Adjusted EPS increased a relatively pedestrian 11%, roughly matching its revenue growth. Higher marketing and promotion costs associated with a free advertising campaign and promotion, additional costs associated with the growth of Chipotle's delivery business, and a higher amortization expense resulting from upgrades stores offsets savings elsewhere in the business.

Can Chipotle continue its momentum in 2019?

Chipotle expects sales of digital products to remain well-oriented in 2019. The company expects sales to grow by 4% to 6% for the year, with a modest 1.7 point increase percentage of the rise in menu prices. This perspective implies that traffic growth will continue to accelerate. This was probably one of the main reasons for the Chipotle Stock rally on Thursday.

For its part, Chipotle has slowed down the pace of its expansion. It plans to open between 140 and 155 new restaurants this year, an increase of about 6%, while the number of its restaurants was growing at a double digit rate just a few years ago. In addition, these restaurant openings will be weighted in the second half. This means that Chipotle's revenues are expected to increase by less than 10% in 2019.

In addition, Chipotle expects most of its major cost categories to grow alongside sales this year. The only significant source of margin expansion will be at the level of general and administrative expenses, where management expects substantial savings. As a result, while Chipotle's pre-tax margin is expected to increase further, it is expected to remain below 10% by 2019.

It's time to make gains

In early 2017, I argued that the chipotle stock could reach $ 1,000 or more by 2022, under the combined effect of a sustained expansion and a rebound in average sales. per restaurant to record levels of 2015 or higher.

Since then, average restaurant sales have increased, but only 4% to just over $ 2 million. This remains well below the average unit volume of more than $ 2.5 million achieved in the 12 months ended September 30, 2015, just before the Chipotle food security crisis became unmanageable. At this point, Chipotle's pre-tax margin was 19%.

Even if the company achieves its goals this year, its pre-tax margin will be only half that level. This potential result underlines the paramount importance of high unit volumes to achieve margins close to those produced by Chipotle.

The good news is that Chipotle has many levers to generate new gains, such as launching new menu items, increasing restaurant throughput, educating customers about its delivery options and implementing an upcoming loyalty program. These efforts could potentially accelerate the growth of Chipotle's sales in the coming years, helping it to grow its profit margin faster.

That said, Chipotle is now trading 45 to 50 times more than the expected earnings for 2019. This is a very high valuation for a company that has slowed the expansion of its stores and barely increases its operating margin at level of restoration. I do not give up Chipotle shares, but I expect to make gains next week, the risk-reward tradeoff being far less favorable than it was a year or two ago.