Is the Chipotle Mexican Grill comeback for real?

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Chipotle Mexican Grill(NYSE: CMG) still hasn't reported a quarter with positive comp sales since a food-safety scandal erupted at the fast-casual Mexican chain in late 2015. Indeed, revenue fell by double digits in 2016 even as Chipotle continued opening new restaurants at a rapid pace.

However, investors are starting to gain confidence in Chipotle's turnaround efforts. Since the beginning of 2017, Chipotle stock has surged by nearly 20%.

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Chipotle is still probably about two years away from returning to its pre-crisis level of earnings. That said, the company does appear to be getting itself back on track, which could lead to further share-price gains in the months and years ahead.

The sales trend is turning

The most obvious sign of Chipotle's recovery is its recent return to comparable restaurant sales growth. On the company's Q4 earnings call in February, CFO Jack Hartung stated that comp sales rose 14.7% in December and surged nearly 25% in January.

To be fair, Chipotle is facing extremely easy comparisons right now. Chipotle's food-safety crisis peaked in Q1 2016, when comp sales plunged 29.7% and the company lost money. That said, double-digit comp sales increases imply that Chipotle is starting to win back a meaningful proportion of the business it lost a year ago.

Restaurant analysts at Wedbush noted last month that Chipotle was tracking toward a comp sales increase of 15% or better for the full first quarter. That would meet or exceed most investors' expectations. It would also put Chipotle in good shape for the spring and summer, when it will be running its big marketing campaigns.

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Chipotle restaurants through the years
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Chipotle restaurants through the years
DENVER, CO - FEBRUARY 9: Steve Ells, 32, owner of the Chipotle Mexican Grill restaurant chain, in front of one of his stores at 32nd & Lowell Blvd. in Denver, Colorado on Monday, Feb. 9, 1998. (Photo by Hyoung Chang/The Denver Post via Getty Images)
Exterior of the Chipotle restaurant on Wisconsin Ave. NW Washington, D.C. (Photo by Michael Williamson/The Washington Post/Getty Images)
GLENVIEW, IL - DECEMBER 02: Activity is seen near the order-counter area inside a Chipotle restaurant December 2, 2005 in Glenview, Illinois. McDonald's Corp., owners of 92 percent of Chipotle, are preparing its Mexican-style eateries for an initial public offering. (Photo by Tim Boyle/Getty Images)
CHICAGO - JANUARY 26: The Chipoltle Mexican Grill logo is painted on the door of one of the Chain's restaurants in the trendy Bucktown neighborhood January 26, 2006 in Chicago, Illinois. McDonald's spin-off of the restaurant chain ended the day with the Initial Public Offering (IPO) closing at $44, double its opening price. It was the best opening day gain by a U.S.-based IPO in more than five years. (Photo by Scott Olson/Getty Images)
UNITED STATES - JANUARY 26: Workers prepares meals at Chipotle Mexican Grill in West Bloomfield, Michigan on Thursday, January 26, 2006. Chipotle Mexican Grill Inc.'s shares more than doubled on the first day of trading after McDonald's Corp. took the fast-growing chain public. (Photo by Jeff Kowalsky/Bloomberg via Getty Images)
DENVER, CO - JANUARY 26: The original Chipotle restaurant at 1644 E. Evans Ave in Denver, shown here on Jauary 26, 2006. (Photo by Cyrus McCrimmon/The Denver Post via Getty Images)
A Chipotle burrito in it's signature aluminum wrap on Friday, February 12, 2010. Burrito was that the original location on E. Evans Ave. Cyrus McCrimmon, The Denver Post (Photo By Cyrus McCrimmon/The Denver Post via Getty Images)
Chipotle burritos at the original location on E. Evans Ave. Bryan Sawyer who eats about 3 times a week at the Chipotle eats a steak black bean burrito on Friday, February 12, 2010. Cyrus McCrimmon, The Denver Post (Photo By Cyrus McCrimmon/The Denver Post via Getty Images)
Gregory Rec/Staff Photographer: -- Kyle Braley stirs a tomatillo green chili salsa at Chipotle Mexican Grill in South Portland on Monday, December 13, 2010. The popular restaurant chain, which serves naturally-raised beef, chicken and pork, has its grand opening today. (Photo by Gregory Rec/Portland Press Herald via Getty Images)
A pedestrian walks into a Chipotle Mexican Grill Inc. location in New York, U.S., on Wednesday, Oct. 17, 2012. Chipotle, the best- performing restaurant stock in the Standard & Poor's 500 Index last year, is expected to release earnings data on Oct. 18. Photographer: Scott Eells/Bloomberg via Getty Images
The Chipotle Mexican Grill Inc. logo is displayed on a paper bag at a location in New York, U.S., on Wednesday, Oct. 17, 2012. Chipotle, the best- performing restaurant stock in the Standard & Poor's 500 Index last year, is expected to release earnings data on Oct. 18. Photographer: Scott Eells/Bloomberg via Getty Images
Chipotle Mexican Grill Inc. employees prepare food at a location in New York, U.S., on Wednesday, Oct. 17, 2012. Chipotle, the best- performing restaurant stock in the Standard & Poor's 500 Index last year, is expected to release earnings data on Oct. 18. Photographer: Scott Eells/Bloomberg via Getty Images
A steak burrito is arranged for a photograph with a drink and bags of chips at a Chipotle Mexican Grill Inc. restaurant in Hollywood, California, U.S., on Tuesday, July 16, 2013. Chipotle Mexican Grill Inc. is scheduled to release earnings data on July 18. Photographer: Patrick T. Fallon/Bloomberg via Getty Images
A employee sprinkles cheese on a burrito at a Chipotle Mexican Grill Inc. restaurant in Hollywood, California, U.S., on Tuesday, July 16, 2013. Chipotle Mexican Grill Inc. is scheduled to release earnings data on July 18. Photographer: Patrick T. Fallon/Bloomberg via Getty Images
Employees prepare lunch orders at a Chipotle Mexican Grill restaurant at Madison Square Park in New York, U.S., on Wednesday, Jan. 29, 2014. Chipotle Mexican Grill Inc. is expected to release earnings figures on Jan. 30. Photographer: Craig Warga/Bloomberg via Getty Images
Employees prepare lunch orders at a Chipotle Mexican Grill restaurant at Madison Square Park in New York, U.S., on Wednesday, Jan. 29, 2014. Chipotle Mexican Grill Inc. is expected to release earnings figures on Jan. 30. Photographer: Craig Warga/Bloomberg via Getty Images
MIAMI, FL - MARCH 05: A Chipotle restaurant is seen on March 5, 2014 in Miami, Florida. The Mexican fast food chain is reported to have tossed around the idea that it would temporarily suspend sales of guacamole due to an increase in food costs. (Photo by Joe Raedle/Getty Images)
A Chipotle eatery in the Financial District of Manhattan NYC viewed from the outside looking in shows the interior design as well as people eating & talking, & also reflects the urban building from across the street in the upper left corner of the window
NEW YORK CITY, NEW YORK, UNITED STATES - 2015/10/18: Restaurants in USA: Chipotle Mexican Grill Chipotle Mexican Grill, Inc. is a chain of restaurants in the United States, United Kingdom, Canada, Germany, and France, specializing in Mission burritos and tacos. (Photo by Roberto Machado Noa/LightRocket via Getty Images)
NEW YORK, NEW YORK -- FEBRUARY 8: A sign sits in the window of a Chipotle restaurant on Broadway in Lower Manhattan telling customers the restaurant is closed until 3 p.m. on February 8, 2016 in New York City. The Mexican food chain is closing stores for lunch nationwide for a meeting on food safety following a number of E. coli outbreaks. (Photo by Andrew Renneisen/Getty Images)
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Chipotle's reputation is recovering

A second positive sign is that Chipotle's reputation is starting to rebound. As my Foolish colleague Jeremy Bowman reported last month, a survey by Market Force found that Chipotle's customer loyalty score has increased this year, making it again the top Mexican food chain in terms of customer loyalty.

Just this week, the company received high marks in another survey. Certify's SpendSmart report -- which tracks how business travelers spend money on expense accounts -- revealed that Chipotle was the second highest-rated restaurant chain, trailing only Chick-Fil-A.

These studies suggest that Chipotle's marketing may become more effective in 2017. Last year, the company was stuck between a rock and a hard place in terms of advertising. Focusing on food safety just reminded customers of the previous problems, while Chipotle's traditional marketing messages related to "better-for-you" food rang hollow. However, if customers have finally forgiven Chipotle, the company's new marketing push around eliminating preservatives may gain traction.

Focusing on the basics

A third positive sign is that Chipotle is simplifying its operations to focus on getting the basics right. Over the past year, the company has made some unforced errors, such as having staffing levels that weren't properly aligned with customer traffic trends.

Upon being reappointed as Chipotle's sole CEO in late 2016, Steve Ells told investors that removing complexity from store operations would be a key priority going forward.

The focus on simplicity also extends to the corporate level. Last fall, Chipotle decided to seek "strategic alternatives" for its small ShopHouse Southeast Asian Kitchen chain, which hasn't lived up to expectations. In March, the company shut down all 15 locations and sold the leases to another restaurant operator. This removes one potential distraction for Chipotle's management.

Chipotle will reward patient investors

Most Wall Street analysts expect Chipotle to fall well short of its $10 earnings-per-share target in 2017. And even if the company hit that goal, the stock would be trading for a lofty 45 times earnings. As a result, many investors are still nervous about owning Chipotle stock.

However, Chipotle will probably be able to win back most of its previous customers in the next few years, if it hasn't already. Its affordable, freshly made food is likely to win new fans as well. This should allow it to gradually rebuild its store productivity -- and thus its earnings power.

Before the E. coli outbreak hit in late 2015, Chipotle was on pace to finish the year with EPS of about $17. By 2019 or 2020, Chipotle's earnings should surpass this level because of rebounding margins and the steady expansion of its store base. There is plenty of room for growth beyond that level, too. Thus, the rally in Chipotle stock may just be beginning.

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Adam Levine-Weinberg owns shares of Chipotle Mexican Grill. The Motley Fool owns shares of and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

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