Chipotle Mexican Grill (NYSE: CMG) and Starbucks (NASDAQ: SBUX) recently saw their stocks go in opposite directions. On Aug. 13, Chipotle announced that its CEO, Brian Niccol -- who had led the fast-casual restaurant's impressive turnaround over the past six years -- would depart at the end of the month to become the new CEO of Starbucks.

Chipotle's stock has declined 6% since then, and Starbucks' stock surged 23%. That price action suggests investors expect Chipotle to struggle without its star CEO, but they're also hopeful he can revive Starbucks' growth. Should investors chase Starbucks and sell Chipotle? Or should investors stick with Chipotle and avoid Starbucks' hype-driven rally?

Can Chipotle keep growing without Niccol?

Chipotle's comparable-restaurant sales (comps) declined in 2016 and 2017. That slowdown was caused by several food poisoning outbreaks, the tepid adoption of its mobile app, and tough competition from other fast-casual chains.

To reboot its business, Chipotle hired Brian Niccol, the CEO of Yum Brands' Taco Bell, as its new leader in 2018. Under Niccol, it launched new grab-and-go ordering options, expanded its mobile app with more features and analytics tools, and rolled out a rewards program to lock in repeat customers.

Niccol also halted Chipotle's margin-crushing discounts and promotions, and allocated its spending toward fresh TV, social media, and digital advertising to reboot its brand. The company also repeatedly raised its menu prices to counter inflation.

Those efforts paid off, and its comps rose 4% in 2018 and stayed positive over the following five years. It expanded its store count from 2,491 in 2018 to 3,437 in 2023, and its revenue had a five-year compound annual growth rate (CAGR) of 15% as its earnings per share (EPS) had a CAGR of 47%. That's why its stock has risen more than 220% over the past five years.

Scott Boatwright, who has been the company's chief operating officer since 2017, will succeed Niccol as interim CEO. The company insists Boatwright will stick with Niccol's current strategies "without interruption," but investors should see if it can keep growing its comps as it opens new stores and expands its restaurant-level operating margins.

Analysts expect Chipotle's revenue and earnings to grow 15% and 21%, respectively, this year, but its stock is still richly valued at 48 times forward earnings.

Can Niccol actually revive Starbucks?

Starbucks' stock rallied after Niccol's appointment, but it's down 2% over the past five years. The chain's comps plummeted in fiscal 2020 (which ended in September 2020) as the pandemic spread, and rose 20% in fiscal 2021, 8% in fiscal 2022, and 8% in fiscal 2023.

In fiscal 2024, Starbucks' growth sputtered out. Its global comps rose 5% in the first quarter but declined 4% in the second quarter and fell 5% in the third quarter. During those two quarters, its comps fell by the low single digits in North America and dropped by the low double digits in China.

In North America, Starbucks slightly offset its declining transactions with a small increase in its average ticket size. But in China, its total transactions and average ticket size both declined. That's a grim situation because the U.S. and China are Starbucks' two largest markets.

That slowdown can be attributed to inflation's effect on discretionary spending and the company's limited pricing power in an increasingly saturated market. There is stiff competition from Dutch Bros in the U.S., Luckin Coffee in China, and other companies -- and that pressure won't ease anytime soon.

Laxman Narasimhan, who succeeded Howard Schultz as CEO last April, couldn't resolve those issues before he was ousted. Starbucks is giving Niccol a massive pay package worth up to $113 million to turn around its business, but it will be an uphill battle.

Starbucks is a much larger company than Chipotle, and Niccol doesn't have much experience in China. Its digital flywheel has also matured, so Niccol can't simply beef up its digital capabilities as he did with Chipotle.

For now, analysts expect Starbucks' revenue and earnings to rise 2% and 1%, respectively, in fiscal 2024 as it struggles to grow in the U.S. and China. At 24 times forward earnings, its stock doesn't look cheap relative to that anemic growth.

The better buy: Chipotle

Chipotle's stock is pricier, but it doesn't face as many existential challenges as Starbucks. The loss of its turnaround CEO is disappointing, but it's still being led by the chief operating officer who executed those turnaround strategies over the past six years. So if you believe Chipotle can maintain its current momentum, then it still deserves its premium valuation.

Starbucks is in deeper trouble. Hiring Niccol is a step in the right direction, but there's no guarantee he can resolve the ongoing challenges. For now, I would stick with Chipotle instead of chasing Starbucks' recent rally.

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Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill, Luckin Coffee, and Starbucks. The Motley Fool recommends Dutch Bros and recommends the following options: short September 2024 $52 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

Best Stock to Buy Right Now: Chipotle vs. Starbucks was originally published by The Motley Fool