Chipotle Mexican Grill, Inc. (CMG): This Restaurant Chain Is a Little Too Expensive

Page 1 of 2

With sales up almost tenfold over the past decade, Chipotle Mexican Grill, Inc. (NYSE:CMG) is unquestionably one of the fastest-growing food-service companies in the market. With about 1,400 restaurants currently, mainly in the U.S., Chipotle still has plenty of room for growth, particularly in international markets, an area the company is just beginning to explore. My only concern is that maybe a lot of the growth potential of Chipotle is already priced into the stock, that is, maybe the market is just a little too optimistic. Is there still room for Chipotle to rise, or could you put your investment dollars to better use elsewhere in the fast-food business?

Chipotle Mexican Grill, Inc. (NYSE:CMG)

The growth of Chipotle

As the revenue chart shows, Chipotle Mexican Grill, Inc. (NYSE:CMG) has grown at a tremendous rate over the years and has successfully earned a reputation of offering high-quality food at fast-food prices. The company prides itself on only serving naturally raised meats and fresh produce, which are part of its ‘food with integrity’ philosophy.

Chipotle is part of a very rapidly growing segment of the food-service industry known as “fast casual,” which reflects the shifting tastes of the American public toward healthy food at low prices that is served quickly. Over the past several years, fast-casual restaurants have seen their sales grow at double-digit rates as opposed to other restaurant categories, whose sales have averaged a 1% to 2% decline in recent years.

What is most remarkable is that Chipotle Mexican Grill, Inc. (NYSE:CMG)’s sales growth has not slowed down at all, even over the peak recessionary period between 2008 and 2010. In fact, the chart above indicates that revenue growth actually accelerated during that time period.

My main worry with Chipotle is that too much growth may be priced into shares right now. Chipotle trades at just under 40 times trailing-12 months earning, which by itself isn’t too uncommon for a rapidly growing company. Chipotle is projected to earn $10.62 per share this year, rising to $12.72 and $15.40 in 2014 and 2015, respectively. This translate to average annual forward earnings growth of 20.8%, which is great but I’m not sure if it justifies such a high valuation.

I’m also a bit skeptical about how long Chipotle Mexican Grill, Inc. (NYSE:CMG) can keep up this growth rate. As more and more of the company’s restaurants open, it will become more difficult to sustain the high growth. For example, for 20% growth, the company would have to open 280 stores this year based on the current store count. This seems manageable, but next year the company would need to open 336 stores to simply maintain the same rate of growth. You can see how this rate of expansion will get more difficult over time.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

The 10 Countries with the Highest Suicide Rates

The 10 Most Technologically Advanced Countries in the World

The 10 Safest Countries in the World to Live in Peace

The 10 Top Selling Smartphones in the World 2014

The 12 Biggest Shopping Centers in the World

The 10 Friendliest Countries in the World

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!