Motley Fool Hidden Gems Investing - Don’t Call It a Comeback

Episode Date: December 10, 2025

Some of the most well-known companies in the world have dropped in 2025, so can they make a comeback? We dig into the fortunes of Chipotle, Target and Crocs. Travis Hoium, Jon Quast, and Rachel Warren discuss: - Chipotle’s drop and falling same-store sales - Target’s lost identity - Crocs’ value Companies discussed: Chipotle (CMG), Target (TGT), Crocs (CROX). Host: Travis Hoium Guests: Jon Quast, Rachel Warren Engineer: Dan Boyd Disclosure: Advertisements are sponsored content and provided for informational purposes only. The Motley Fool and its affiliates (collectively, “TMF”) do not endorse, recommend, or verify the accuracy or completeness of the statements made within advertisements. TMF is not involved in the offer, sale, or solicitation of any securities advertised herein and makes no representations regarding the suitability, or risks associated with any investment opportunity presented. Investors should conduct their own due diligence and consult with legal, tax, and financial advisors before making any investment decisions. TMF assumes no responsibility for any losses or damages arising from this advertisement. We’re committed to transparency: All personal opinions in advertisements from Fools are their own. The product advertised in this episode was loaned to TMF and was returned after a test period or the product advertised in this episode was purchased by TMF. Advertiser has paid for the sponsorship of this episode. Learn more about your ad choices. Visit ⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠⁠megaphone.fm/adchoices Learn more about your ad choices. Visit megaphone.fm/adchoices

Some of the best-known stocks of the last decade have fallen in 2025. Can they make a comeback? Motley Fool Money starts now. Welcome to Motley Fool Money. I'm Travis Hoyum, joined today by John Quast and Rachel Warren. And today we want to talk about comebacks and potential comebacks to some really well-known companies, Chipotle, Target, Crocs. Those are the three that are going to be on the tip of our tongue today. But there's a number of companies that kind of fall into this category.

Chipotle stock, John, has fallen 51% from its high in 2024. Same store sales have gone negative. This is one of those companies that sort of seemed indestructible since the whole E. coli thing early in the 2010s, but things have really turned over the past year. So has something changed? And I also want to note that the valuation is something that we should talk about because this is a company that is very well known, always been very highly valued, but it still trades for 30 times earnings. So is this the kind of stock that you're looking at? Hey, you know what? Maybe this is a stock to come back in 2026, or is it still a little too uncertain? It's a good question, Travis. Let's just start by saying that over the long-term,

stock price is correlated with profits. Chipotle's profits are somewhat okay right now, but investors clearly believe that they're headed lower in coming years. That's why this stock has fallen as much as it has. I think there's some credence to the fear that Chipotle's profits could fall. So there's a little trend emerging. If you look over the last three quarters, Chipotle's opened about 200 new locations. Average unit volumes have dropped about 3% over that time. And that's actually pretty rare for Chipotle. Those average unit volumes, the sales per location per year, have gone up consistently over the last 20 years, let's say. And lower sales volume at a location is going to lead to lower profit margins. That's just

how it works. Accordingly, the restaurant-level operating margin has fallen over the past year. Not a ton. It's still good, but it has dropped. You start looking at a company like Chipotle that has already scaled so much, almost 4,000 locations right now. It thinks that it can add 3,000 more, but are those next 3,000 locations going to be as high of sale volume, as high quality as the last 4,000? That's really the question. If it's adding a lot of underperforming new stores, then it does drag down the profits. John, you follow a lot of the restaurant space, at least a number of companies. Some of what we're seeing at Chipotle is across the board, so it's not Chipotle-specific. How does that play into your calculus? Maybe people are eating out

less. Maybe fast casual is getting more saturated overall. Is that something that will just go, you know what? Maybe I'm interested, but not over a certain price? Or how does that play into how you're thinking about the potential comeback of Chipotle? I think it's a little bit dismissive to say that people aren't eating out as much. There's definitely some shifts happening in the market. We're seeing some casual dining, some of those more family-oriented casual dining chains doing a little bit better than they have in times past. So it seems like there's some shifts happening. I will say with Chipotle, one of the interesting things is it's in a very strong financial position. That makes it very hard to count it out. It's still earned $1.5 billion in

net income over the past year. It has $1.8 billion in cash and investments, no debt other than its lease liability. It's still in a great position that it can pivot the business as it needs to, and it can still give cash back to shareholders. I'd be very hesitant to say Chipotle's best days are over. Rachel, there are things that restaurants can do to goose those same store sales. You know, John brought up the number of restaurants that they're opening always seems to be kind of a push and a pull. If you're having negative same store sales, do you want to open another 200 stores? Because it could, you just be cannibalizing yourself, but they're also talking about innovation in the menu. They've done a little bit of that recently. I've tried some of their

new menu items. They've been kind of hit or miss, but how, what are the catalysts that you're looking at potentially for a company like Chipotle, if there is a comeback? Yeah, I do think that there's a comeback here. So it's not to bury the lead. I think a lot of this, what we're seeing with Chipotle, and I will note also across the quick service restaurant space, a lot of it is a function of some of the dynamics we're seeing in the macro environment. And you're right, you know, Chipotle, they're heavily investing in menu innovation. They've found success with a lot of the limited time offerings that they've introduced. And they've said, guests who purchase those limited time offerings tend to return more frequently. But

I think it's important to take a little bit more of a holistic look at what's going on with Chipotle specifically. So interesting fact, about 40% of Chipotle sales come from households that are earning under $100,000 annually. This is a really core demographic for them. And this is also a demographic that's facing inflationary pressures, economic pressures. We're seeing that cohort tend to reduce dining frequency. They're choosing to eat at home more often instead of switching to competitors. And so, this is where you've seen a real decline in customer traffic for Chipotle throughout 2025. And Chipotle has intentionally held back on fully offsetting inflation with price increases. So, that's also where we're seeing margin compression compared to some of

their peers who maybe have raised their prices more aggressively. But digital sales are a really powerful growth tailwind for Chipotle, right? You know, their long-term growth strategy remains intact. They're planning to open anywhere between 350 and 370 new restaurants in 2026 alone. And they're also really focusing on their international expansion in Europe, in the Middle East, across Asia. They are accelerating that move through various partnerships they have. I think that at its core, this is still a business that is also very strong financially. The board's authorized an additional $1.8 billion in share repurchases as well. And I think that's a real sign of confidence that their long-term outlook and as well as their intended value to shareholders

holds. This is still a profitable business. Yes, they're seeing decreases in comparable restaurant sales. I think a lot of that is a function of these factors I've mentioned. But this is really very much a strong business that's dealing with cyclical headwinds, not so much structural issues. So I think that maybe its current valuation could pose a really interesting value proposition to long-term investors. John, let's talk about that valuation because one of the things you look back on, Chipotle has never been a particularly cheap stock. I look back on the history, there's not really this moment where you could have bought Chipotle at 10 times earnings or 12 times earnings. It has always traded for a pretty

high price-to-earnings multiple. If you just go back to the middle of 2024, the price-to-earnings multiple was 70. Now it's down to about 30. Is this sort of just a cautionary tale of, you know what, buy a great company, but price does matter at the end of the day? Well, price does matter in particular, the bigger that the company gets and the lower the long-term growth prospects become. So it's different paying a 70 PE multiple for a company with 100 restaurants that could grow to 1,000 versus 1,000 restaurants, and maybe it can grow to 2,000 or 3,000? It's a difference of scale? Absolutely. To quote the great Warren Buffett, growth is a component of value. If you're going

to calculate what is a good valuation for a company, you need to also be able to calculate what are the realistic growth prospects. When you have a small company, yeah, growth is going to be a lot easier than a large company looking to do the same thing. When we come back, we're going to talk about a stock that is pretty cheap on a price to earnings basis, but maybe doesn't have the same growth opportunity. That is Target. You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Rachel, Target stock is down 46% over the past five years. It's fallen sort of out of favor with investors and shoppers alike. Some of the same star sales comps a little bit, you know, sometimes it's negative a little bit. Sometimes they're a little bit positive,

but overall, just nothing really impressive going on at Target. But the stock trades for 11 times earnings. So is there hope for a bounce back here? I think there is. And you make a good point. Target's performance as a business financially the last few years has certainly been nothing to write home about. And that's been true for the stock as well. And as it's now trading at this very low forward PE ratio of around 11, I want to stress, I don't think that this is a value trap. This is still a company that maintains very robust fundamentals. They have an A credit rating. They have just a little under $5 billion in cash. And importantly, they have a very well-funded and growing dividend with 53 years accounting of consecutive increases. So,

I think that does underscore its financial stability despite current struggles. Now, I think very differently from the other business we've talked about today, Chipotle, and obviously, this is a different industry. Target's struggles, some of them have been related to the macro environment, but a lot of them have been very, very specific to the company. There's been a lot of consumer backlash over various policies. They've really, really struggled to retain a solid share of non-discretionary spend. You've got a lot of consumers going to rivals like Walmart. This has all created, I think, a bit of a perfect storm for Target. Now, we have a new CEO coming in, Michael Fidelke. He's a longtime veteran at the company. He

officially takes the role in February of 2026. And under his leadership, I think Target really plans to implement what we're seeing as a multi-year plan on reinvigorating their private label brands, some of their key discretionary categories like toys and sporting goods. Target's already trying to really invest heavily in store remodels. They've been leveraging various AI-powered tools for personalized shopping. Management is confident in their plan. They want to regain market share. They're planning to drive over $15 billion in revenue growth over the next five years? I think that's possible, but I think that there's a major shift that needs to happen in the business in the next few years for that to happen. A lot of the drag

on their performance has been the shift in consumer spending. They're still a profitable business, but those sales declines are really dragging overall. So I think how they manage inventory efficiently, how they manage some of these AI-powered tools, how they're able to resonate with consumers in the next few years is really going to be key to that turnaround. You brought up Fidelki coming in as CEO and the changes that could potentially happen, but Fidelki was the COO before. So everything that has happened in the last five years, his fingerprints are all over it. Do you think there's actually going to be any meaningful change in the right direction, or is this just going to be more of the same?

I don't think it's going to be more of the same. I do think there's some very specific changes he wants to implement once he's officially in the CEO role. But I think that there is and should be a sort of a healthy level of questioning from investors of what this is going to look like moving forward. You know, I think if you're an investor that's looking for a well-funded dividend, you know, maybe this is a business that's intriguing, but certainly lagging behind its peers like Walmart and many others. I mean, we talked about a few weeks ago how Target wasn't exactly forecasting generous growth expectations for the Black Friday season, which, as we know, is a really key growth area for a lot of retailers. So, I think how they implement these changes in the next few years is going to be key. And I think there's still a lot of questions about what that's going to look like. John, when you look at a company like Target, it seems like there's opportunities.

You've got that high dividend. But is there also potential risk there because of that valuation? The market is telling us something. Absolutely. When you have a dividend king, such as Target, having an all-time high dividend yield of about 5%. The market is saying, we don't buy this. We do not believe that this company is going to continue to grow profits and continue to increase that dividend. The market, a high percentage of investors are doubting that potential. I'm going to disagree kindly with

Rachel here because I think that the problem here is it almost sounds like they are doubling down on what's not working. When I hear about remodel, when I hear about private label, which they already have private label, it's not like they're launching a new private label. This is doubling down on what's not working. When you promote the COO to the CEO, you're doubling down on it. And maybe it works. Maybe it does work. Maybe this is the correct direction for the company. But it does sound like, hey, we're going to keep moving forward in futility here. So yeah, I understand why the market doubts it. Now, I am a broken record, and I'll say it again. I do believe that the company has a path forward to driving sales growth and improving its profit margins,

specifically its digital businesses. The third-party marketplace that it is curating, its digital advertising, these are things that are growing at Target, and they do have the potential to help out the financials of the company. However, they are predicated on the stabilization of the core retail operations. And so it is very important that Target gets it figured out, stabilizes that. They're in a weird place in the mindshare of the consumer. Are we upscale? Are we discount? Nobody knows. So there are some things to work out. I don't necessarily feel like it made the best choices here right now, but it's not a lost cause. Okay, John, final answer. Can Target make a comeback?

Yeah, I think it can. And I think that the Target stock price has already hit its low point. Oh, all right. Rachel, what do you think? Yeah, I agree with John. I do think they could make a comeback. How they execute is key, though. And this is a stock I'm watching with, I think, a fair amount of caution, like a lot of investors right now. At least the risk is a little bit lower with the price-to-earnings multiple. That's getting very close to single digits. Very true. When we come back, we're going to talk about one of John's favorite stocks. That is Crocs.

You're listening to Motley Fool Money. Welcome back to Motley Fool Money. Another company that I'm looking at as a potential comeback play in 2026 is Crocs. Look, I have counted these shoes out over and over again over the past decade, but they seem to keep coming back. John, the stock is down 23% just over the past year, and shares are trading for just seven times forward earnings estimates. Can Crocs make a comeback? Of these three companies that we're talking about, I believe that Crocs has the clearest

path towards a comeback because it also has the clearest explanation of what has gone wrong. And so let me summarize it as quickly as I can. In 2022, Crocs bought another shoe company called Hey Dude. Sales growth was amazing for a period of time. Then Crocs management overestimated the growth potential for HeyDude, and it stuffed the wholesale channels full of HeyDude merchandise. Then, sales growth stalled, and now the company has had to work through bloated inventory at wholesale channels, and that is hurting both sales and profit margins. It had to take a good will impairment charge, a significant one recently, too. That's basically them saying, oops, we overpaid for this company. Yeah. And by a lot. And so it took on

debt to acquire HeyDude. It's been paying that back down. All of these things have been weighing on Crocs' financials for multiple years now. But you look at it and the Crocs brand itself is still growing internationally. It's taken a breather in domestic markets, but they're down slightly sales overall, but it's nothing troubling. The margins are still really good. The valuation is incredibly cheap, as you point out, Travis, less than seven times its free cash flow. As you look at what it does with its profits, it's repurchasing shares. The share count is down about 16% over the last three years. It's doing shareholder-friendly things with its ongoing profits. You put it all together, and I believe Crocs does have a comeback in store,

and I think it's a market beater over the next five years. Rachel is this fashion is always hard are crocs for example going to be in fashion every time I write something about crocs I always hear you know what kids aren't wearing crocs anymore and then I go look at the kids walk into the elementary school near me and everybody's wearing crocs so it just seems to be you know what maybe in one city they're not popular in another city they are it makes it really hard to follow some of these companies yeah I will note with crocs I mean they have had their fair share of rebrands over the years. I mean, they nearly went bankrupt following the 2008 financial crisis. They successfully restructured their operations. They kind of began

what they called their chic comeback era around 2016. And this was because they basically entered into a range of different high-profile collaborations with various fashion designers like Balenciaga, Christopher Kane. They did collabs with celebrities like Justin Bieber and Post Malone. They do have some really interesting collaborations, and I have never found any of those shoes appealing. But apparently, it works. It's a very specific type of style, right? I mean, they've also done collaborations with various food brands. I think there was a KFC pair of Crocs, guys. So, sort of all across the map. But going into the pandemic, they definitely were growing again as a business. Obviously, the pandemic era sort of revitalized

the growth of Crocs. I think with so many people staying at home for long periods, the idea of a comfortable foam clog that you could wear both inside and out was something that resonated with consumers, right? And I do think that's something that also really goes back to the strategy we've seen under CEO Andrew Reese, really going back to the core and original products that the company was known for in its very early days. John mentioned the difficulties they've had with HeyDude. They've been working to really manage that excess inventory. Crocs, like many other companies in the space. They've been dealing with the impact of tariffs on goods, right? I mean, it's a competitive market. And there's also now the introduction of tariffs that are compressing

margins. What I will note is that while we've seen a decline in North American sales, Crocs has seen really strong double-digit growth in some of their newer international markets, China, Western Europe. That's been really interesting to see. That's partially offsetting some of the domestic softness. They do maintain, compared to the broader industry, pretty strong margins. They've been really trying to actively manage their capital structure. And they are still the number one footwear brand on TikTok shop in the U.S. So there seems to be a way in which this is resonating with the newest generation of shoppers. So I wouldn't count Crocs out. Do you think that Crocs is going to make a comeback? I think John is a hard yes. But do

you think that 2026, this is a comeback stock? I'm a maybe. I'm maybe not as optimistic as John, but I like the business. I'd like to see them succeed. All right. Final question for the two of you. Do you own any Crocs? I don't currently, but I used to have a few pairs, John. Oh, you mean the shoes? I thought you meant the stock. Okay. No, I do not personally own any Crocs shoes. However, there are several pairs of Crocs shoes in the cost household. We are the same. Uh, I also own shares of Crocs stock because my kids love it. So I'm not a Crocs buyer, but I have spent plenty of money on Crocs for those kids. As always, people on the program may have interest in the stocks they talk about, and The Motley Fool may have formal recommendations for or against,

so don't buy or sell stocks based solely on what you hear. All personal finance content follows The Motley Fool's editorial standards, and it's not approved by advertisers. Advertisements are sponsored content and provided for informational purposes only. To see our full advertising disclosure, please check out our show notes. For Rachel Warren, John Quast, and Boyd behind the glass and the entire Motley Fool team, I'm Travis Hoyum. Thanks for listening to Motley Fool Money. We'll see you here tomorrow.