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The eatery with a second course on the way

Gone are the days when Chipotle Mexican Grill, Inc. (NYSE:CMG) was expanding its burrito empire and growing its earnings 40% year over year. In fact, the most recent quarter saw earnings per share up about 10%. That’s good, but it makes Chipotle look awfully expensive at 43 times earnings.

It still has plenty of room to expand its burrito empire. It plans to add 165-180 more stores to its roughly 1,500 locations this year. And it has still barely touched foreign soil.

Still, more intriguing may be Chipotle Mexican Grill, Inc. (NYSE:CMG)’s second act: ShopHouse . This Asian-inspired eatery has just a handful of locations. But it holds great promise, given Chipotle’s stellar track record so far. Investors are willing to pay up because they believe there’s an encore at the end of this show.

Where it could go wrong:

Just because Americans love Chipotle Mexican Grill, Inc. (NYSE:CMG) burritos doesn’t mean people in all markets will. Foreign expansion is fraught with uncertainty. If Chipotle has a tough go internationally, the growth that investors are hoping for may be slow to arrive, if it comes at all.

Whether Americans embrace the ShopHouse line of restaurants is another question mark. Long-term investors will want to watch these areas in quarterly reports in the coming months and years.

The Foolish bottom line

Motley Fool CEO David Gardner imparted this piece of advice in a recent newsletter:

“…don’t center your investing style on valuation work, confidently projecting future cash flow; better to think about where the world is going than whether a given P/E is rational.”

It’s a good piece of Foolish advice (of which you’ll find plenty in the Fool’s newsletters). And it’s too seldom followed by investors who become so enamored with numbers that it puts them in the thick of the trees, unable to see the forest.

The article Don’t Be Afraid to Pay a Premium, “Cheap” Can Always Get Cheaper originally appeared on

John-Erik Koslosky owns shares of Chipotle Mexican Grill. The Motley Fool recommends, Chipotle Mexican Grill, and LinkedIn. The Motley Fool owns shares of, Chipotle Mexican Grill, and LinkedIn. 

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