Shake Shack vs. Chipotle: Which Is the Better Buy?

In a year where the S&P 500 has returned 16%, it's striking to see shares of both Shake Shack ( SHAK +0.19%) and Chipotle ( CMG +0.29%) suffer so badly. Both stocks are down more than 30% year to date, and while the entire fast-casual dining sector has been under pressure this year, that doesn't fully explain their sell-offs. After all, the AdvisorShares Restaurant ETF , a pure-play fund designed to track the broader sector, is down only 3% year to date. Despite their similar stock trajectories for the year, these fast-casual dining companies are fighting different battles. Here's why I'd much rather own shares of Shake Shack -- though neither is a buy today. Chipotle is losing at its own game Since Chipotle's initial public offering (IPO) nearly 20 years ago, shares have returned just over 4,000%. Coincidentally, it just opened its 4,000th restaurant last week, an sevenfold increase from the 581 restaurants it had up and running in 2006, the year of its IPO. That year, it reported $820 million in revenue and $41.4 million in net income, with same-store sales growing 19.7% in the first quarter. For all of 2006, same-store sales grew 11.9%, to $1.61 billion. The company even managed to grow same-store sales by 2.2% during the financial crisis of 2009, and 15 years later, during the pandemic, it grew same-store sales by 15.2% for 2021. NYSE: CMG Key Data Points But last quarter, Chipotle grew same-store sales by just 0.3%, far lower than during the height of the Great Recession. The prior quarter, same-store sales declined by 4%, and Q1 saw a decrease of 0.4%. These same-store sales numbers range from meager to grim, and they're in contrast to the 7.4% same-store sales growth that Chipotle achieved for all of 2024.That was essentially unchanged from the 7.9% same-store sales growth of 2023. So, Chipotle only recently lost its mojo, but it's undeniable something's wrong. Restaurant-level margins are falling in tandem with same-store sales, and as CEO Scott Boatwright mentioned in his earnings call, low- and middle-income diners are visiting Chipotle less often, even after the company addressed a 2024 controversy over portion sizes by directing 10% of stores to retrain in portion sizing. Image source: Getty Images. In that earnings call , the word turnaround was never mentioned. Yet management cut its forecast for comparable sales to a low-to-mid-single-digit decline and also noted declining restaurant-level margins. And in a tone-deaf move, management touted buying back $687 million shares at an average price of $42.39 per share. Yet shares fell by nearly 30% after that Oct. 28 earnings call; management would have done better to wait, or, better yet, to invest that $687 million into improving the company's operations instead. Shake Shack shares have only one problem -- but it's a dealbreaker Shake Shack doesn't have any of Chipotle's current woes. It's growing same-store sales at a healthy clip, most recently by 4.9% year over year last quarter, and sales are up 16% year over...

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