Because of his fantastic track record, Warren Buffett is closely watched by a large swath of the investment community. His conglomerate, Berkshire Hathaway, currently owns many companies that investors can look to for ideas.

There's one business not on that list that operates in an industry Buffett is familiar with. I'm talking about Chipotle Mexican Grill (NYSE: CMG), whose shares have soared 231% in the past five years.

Here are three compelling reasons that the Oracle of Omaha should buy this restaurant stock hand over fist. There's also one obvious reason why he would regret that decision.

Chipotle's brand

Look through the Berkshire Hathaway portfolio, and you'll notice top positions like Apple, American Express, and Coca-Cola. These industry-leading enterprises all possess powerful brands.

To be clear, Chipotle's brand probably isn't as strong as those businesses', but in the restaurant sector, it certainly is highly regarded. According to Piper Sandler's spring 2024 Taking Stock With Teens survey, Chipotle is the third-most popular restaurant among the Gen Z demographic, up from fourth place just six months before.

Chipotle's monster success has spawned other fast-casual copycats focusing on different cuisines. And the relevance of the brand has resulted in tremendous growth, with the business currently operating 3,530 stores.

Focus on the customer

Companies that put customers and their needs first increase their chances of long-term success. For Chipotle, this is part of its DNA, as the business understands that quality, convenience, and price are perhaps the three most important factors for consumers buying restaurant food.

In recent years, Chipotle has enhanced accessibility for customers with the surge in drive-through locations. And with the help of its digital foundation and thriving loyalty program, ordering their favorite burritos or bowls is a seamless experience for hungry consumers.

Pricing power

One of Warren Buffett's favorite qualities in a business is its ability to raise prices with minimal pushback from customers. This is a clear indication of consumers' ability and willingness to pay for what they probably view as a unique offering.

There's no doubt that Apple and Coca-Cola possess proven pricing power. Chipotle does as well. Over the past couple of years, during a time when inflationary pressures have been on top of everyone's mind, the company has been able to successfully institute menu price hikes.

It's hard to deny that Chipotle provides a lot of value to the customer. There has been negative attention drawn to complaints that the portion sizes have gotten smaller. But a 2023 survey found that just 2% of consumers believe Chipotle's prices (relative to meal and service) are not reasonable at all.

There's room here that allows the business to occasionally raise prices. And for what's generally a lower price, you definitely get more food at Chipotle compared to other fast-casual chains, like Cava and Sweetgreen.

Why Buffett would regret buying Chipotle stock

Warren Buffett loves wonderful companies. And based on its success, Chipotle falls into this category. However, just because the Tex-Mex chain passes the quality screen, it doesn't mean the stock should be purchased without hesitation.

The Oracle of Omaha also prioritizes valuation. If you pay too much for a business, it becomes more difficult to generate strong forward returns.

Even with the stock trading 19% off its peak, Chipotle is still extremely expensive, in my opinion. Shares go for a price-to-earnings ratio of 55. That's most likely too rich for Buffett.

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American Express is an advertising partner of The Ascent, a Motley Fool company. Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Berkshire Hathaway, and Chipotle Mexican Grill. The Motley Fool recommends Cava Group and Sweetgreen and recommends the following options: short September 2024 $52 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

3 Reasons Why Warren Buffett Should Buy Chipotle Stock Hand Over Fist, and 1 Reason Why He Might Regret It was originally published by The Motley Fool