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

Have investors learned nothing from the past? Last July, Chipotle Mexican Grill, Inc. (NYSE:CMG) was sailing along at about $400 a share until they reported earnings. When the company announced low single-digit same-store sales growth, the stock plunged to under $300 a share. Investors have been given a few earnings reports since then, and since the end of October 2012 the stock has been on a tear once again. The problem is, it seems like everyone forgot that growth is slowing down at this company. Is another correction coming, or did the company tip off shareholders that better times are ahead?

Chipotle Mexican Grill, Inc. (NYSE:CMG)

A Rough Start
The first three months of this year were difficult for most restaurants. With major storms and torrential rains, customers don’t go out to eat as much. A few of Chipotle Mexican Grill, Inc. (NYSE:CMG)’s competitors like Panera Bread Co (NASDAQ:PNRA), Buffalo Wild Wings (NASDAQ:BWLD), and Yum! Brands, Inc. (NYSE:YUM), specifically cited the weather as a factor affecting their sales.

Panera Bread Co (NASDAQ:PNRA) said their same-store sales increase of 3.3% might have been up as much as 4.8% without weather issues. Buffalo Wild Wings reported same-store sales up 1.4% and suggested weather had an impact. Of course, Yum! Brands, Inc. (NYSE:YUM) is dealing with a separate problem of slowing sales in China, but the negative weather affect didn’t help their domestic results. Chipotle Mexican Grill, Inc. (NYSE:CMG) suffered along with their peers, and reported just a 1% increase in same-store sales.

The issue of same-store sales growth is my first concern about Chipotle at the current time. The company was routinely reporting significant same-store sales growth prior to the middle of last year. However, since these price increases stopped, Chipotle’s same-store sales have increased 4.8%, 3.8%, and 1%, in successive quarters.

Great Expectations…Or Not So Great, As The Case May Be
Peter Lynch said that one of the best gauges of a restaurant is their same-store sales. It’s one thing to compare same-store sales for one period, but what about the company’s expectations for the whole year?

Sorry Chipotle Mexican Grill, Inc. (NYSE:CMG) fans, the company isn’t saying anything different than before about same-store sales. Both Panera Bread Co (NASDAQ:PNRA) and Buffalo Wild Wings (NASDAQ:BWLD) are calling for better same-store sales growth than the burrito roller. Of their peers, only Yum! Brands, Inc. (NYSE:YUM) is struggling worse, and that’s because of their issues in China.

Last year, the company began to predict low single-digit same-store sales growth. Investors didn’t listen last July when this first happened, and the stock got crushed. Today, the company is calling for low single-digit same-store sales growth, and investors seem to be turning a deaf ear again. Compared to expectations from Panera Bread Co (NASDAQ:PNRA) of 4% to 5% same-store sales growth, and “mid-single digit” same-store sales growth at Buffalo Wild Wings (NASDAQ:BWLD), Chipotle’s forecast looks a little worrisome.

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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