Chipotle Mexican Grill, Inc. (NYSE:CMG) isn’t just rolling burritos these days.
The popular fast-casual chain announced yesterday that it will be doubling the size of its ShopHouse Southeast Asian Kitchen chain. Chipotle opened the first Asian-inspired eatery in Washington, D.C.’s Dupont Circle two years ago. There are three more under construction — one in the nearby Georgetown area and two in California — that should open in a few weeks. Now the company has signed leases for four more locations in the same two markets.
For now, this isn’t going to move the needle. We’re talking about eight locations that will be open by the middle of next year. The namesake haven of fast-casual Mexican cuisine will top 1,500 locations later this year.
However, it never hurts to have a second concept ready to go once growth starts to decelerate.
Chipotle Mexican Grill, Inc. (NYSE:CMG) is expected to grow revenue at a 16% clip this year and yet again in 2014. That’s impressive, but it’s already well off the company’s heady pace of the past. Revenue climbed 20% last year after coming through with a 24% boost a year earlier.
Investors have also come to expect big growth spurts out of Chipotle Mexican Grill, Inc. (NYSE:CMG). The stock fetches 34 times this year’s projected earnings, even though it’s growing its top line at half that pace these days.
Chipotle doesn’t necessarily command the highest P/E among Mexican restaurant operators. This is a surprisingly spicy niche in terms of valuations. The much smaller Chuy’s Holdings Inc (NASDAQ:CHUY) is trading at nearly 50 times this year’s profit target, and it’s only growing at a slightly faster rate than Chipotle Mexican Grill, Inc. (NYSE:CMG). Taco Bell parent Yum! Brands, Inc. (NYSE:YUM) may seem like a relative bargain at just 23 times earnings, but where’s the growth? Analysts see Yum! Brands posting slight dips in revenue and earnings this year as its once-hot KFC struggles in China.
Chipotle Mexican Grill, Inc. (NYSE:CMG)’s cult following and its popular “food with integrity” mantra deserve market premiums, but investors will cringe if the expansion potential for the namesake chain tops out and growth begins slipping into the single digits. If ShopHouse continues to successfully expand, that won’t be a problem. ShopHouse will be there for the baton to keep running the next leg of the race.
The article Chipotle’s Exotic Recipe for Growth originally appeared on Fool.com.
Longtime Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Chipotle Mexican Grill.
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