So why is Chipotle so expensive?
Well, for a start, Chipotle Mexican Grill, Inc. (NYSE:CMG) has a solid balance sheet with $472 million in cash and short-term assets and almost no debt. Although, this could be considered by some to be a liability, as companies that stack up cash can be accused of not growing fast enough; high-growth companies usually spend lost of cash to grow rapidly and stay ahead of the game. Chipotle has a quick ratio of 3.1, which could indicate that the company is not reinvesting its cash as well as it could do as a ratio above 1.5 can be considered unhelpful.
That said, current assets cover total liabilities 1.3 times and a strong balance sheet is never a bad sign. On the other hand, the company is only achieving a return on assets of 5%, compared to Dunkin Brands Group Inc (NASDAQ:DNKN)’ at 15% and Burger King Worldwide Inc (NYSE:BKW)’s 5.5%, so once again, Burger King and Dunkin’ outperform Chipotle Mexican Grill, Inc. (NYSE:CMG) on a metric of return.
It appears that there is no immediate explanation for Chipotle Mexican Grill, Inc. (NYSE:CMG)’s expensive valuation and peers Burger King Worldwide Inc (NYSE:BKW) and Dunkin Brands Group Inc (NASDAQ:DNKN)’ could offer faster growth at a more reasonable price.
There is no doubt that Chipotle Mexican Grill, Inc. (NYSE:CMG) is a strong company that is growing rapidly, boosted by a strong balance sheet, customer loyalty and a good product. However, the stock currently seems slightly overvalued in comparison to its peers, which offer the same if not stronger growth but at a more reasonable price. All in all, maybe Chipotle’s stock has gone ahead of the company and should be left to cool off.
Fool contributor Rupert Hargreaves has no position in any stocks mentioned. The Motley Fool recommends Burger King Worldwide and Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill.
The article Chipotle Looks Expensive Compared to Its Peers originally appeared on Fool.com.
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