Key Points
Portillo’s stock has fallen since soon after its IPO.
Investors will have to weigh its low P/E ratio against slowing growth rates.
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Portillo’s (NASDAQ: PTLO) stock initially shot higher from its $20-per-share introductory price before the stock’s initial public offering in October 2021. However, between the 2022 bear market and slowing sales growth, the stock now sells near all-time lows.
Despite that slowdown, the company built a loyal following in its home area of Chicago for years before its nationwide expansion. Knowing that, it is reasonable to try to determine whether Portillo’s stock can turn $1,000 into $5,000 over the next five years.
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The path to a fivefold increase
At an approximate price of $7.60 per share as I write this on Aug. 19, $1,000 would buy 131 shares. A fivefold increase would take the stock to $38 per share. That is not a record high for Portillo’s, but it has not traded at that price since soon after its IPO.
However, the company does not have a high valuation. Its P/E ratio is around 18, well below the 39 earnings multiple of Chipotle. Hence, multiple expansion as investors become willing to pay more for a piece of the company could take Portillo’s much of the way to the $5,000 goal.
Still, slowing financial growth reduces the odds of a higher P/E ratio. Portillo’s recently trimmed its 2025 revenue growth projection significantly to the 5% to 7% range, down from the previous 10% to 12% range. That slowdown could reduce the incentive to pay a premium for the stock.
Indeed, growth has also slowed for Chipotle, indicating sectorwide issues. However, Portillo’s is adding restaurants and sticking to plans to add 12 locations in the second half of the year to the 95 restaurants it currently operates.
Still, the fact that it added only one location in the first half, along with decelerating sales growth, could call that plan into question. This could mean a more severe slowdown than the company has indicated, leaving Portillo’s shareholders with no obvious path to fivefold growth over the next five years.
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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends the following options: short September 2025 $60 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
