Chipotle Mexican Grill, Inc. (CMG): Key Numbers To Know

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How Do You Get Past This Number?
Even if you can put aside the issue of same-store sales, I’m not sure how investors can brush aside the company’s current valuation. This is the third reason history may repeat itself, Chipotle Mexican Grill, Inc. (NYSE:CMG) looks overvalued. To compare companies that pay dividends with those that do not, I use a ratio called the PEG+Y. This ratio, introduced to me by Peter Lynch, adds the company’s yield to their expected growth rate, and then divides by the P/E ratio. Since a higher growth rate and yield, with a lower P/E produces a better result, the higher the number, the better the value.

If you look at Chipotle’s competition by this measure, they each offer better values. Panera Bread Co (NASDAQ:PNRA) and Buffalo Wild Wings (NASDAQ:BWLD) both sell for forward P/E ratios of about 25, and analysts expect about 19.2% growth from each, so their PEG+Y ratios are 0.77. YUM Brands is expected to grow slower at 11.73%, but offers a dividend of nearly 2%, and has a cheaper forward P/E of about 22. When you add all of this up, you get a PEG+Y of 0.62. Chipotle investors seem to have forgotten the past, and have bid the stock up to a forward P/E of 34.2. Since analysts are calling for earnings growth of 19.76%, this produces a PEG+Y of 0.58. In short, Chipotle looks overvalued.

Is There Light At The End Of The Tunnel?
When you combine weak same-store sales today, weak same-store sales projections for the year, and a highly valued stock, this looks like a recipe for a decline in the stock. The company is planning on opening between 165 and 180 new locations this year, which represents 11.7% to 12.7% new store growth. If you add this new store growth, with the company’s expectations of, “flat to low single-digit comparable restaurant sales,” you can see how the company could grow revenue by at least 12%. Since in the current quarter a 13.4% revenue increase, led to a 19.29% EPS increase, analysts projections look about right.

That’s not great news if you are paying a huge premium for the shares. However, the company may have tipped its hand about something that could change these assumptions. Included in their same-store sales projections was the statement, “excluding any potential menu price increases.” Keep in mind, the last time Chipotle increased prices it drove same-store sales to the high single-digit range for multiple quarters.

This is the risk versus reward with Chipotle Mexican Grill, Inc. (NYSE:CMG), if they increase prices, same-store sales could improve along with earnings growth. Higher earnings growth could possibly justify the current valuation. However, if the company only delivers on its originally stated growth, history could repeat itself and the stock could get crushed again.

The article 3 Numbers Suggest History Could Repeat Itself originally appeared on Fool.com is written by Chad Henage.

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