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Chipotle Mexican Grill, Inc. (CMG): This Restaurant Chain Is a Little Too Expensive

Alternative 1: McDonald’s Corporation (NYSE:MCD)

As an alternative, let’s first look at McDonald’s Corporation (NYSE:MCD)’s , the world’s largest fast-food chain in terms of revenue. Despite McDonald’s size, it has proven that it can still grow and adapt and recently the company has done a great job of transitioning its menu to offer healthier alternatives to accommodate consumers’ changing tastes.

McDonald’s currently trades for 18.2 times trailing-12 months earnings, and is projected to grow those earnings at just under 10% going forward. In addition to the stability and security that comes with McDonald’s dominant presence, investors also get a very nice income stream. McDonald’s pays a dividend yield of 3.1%, which is sure to attract income-seeking investors. The company has also raised its dividend every year in recent history, and with a payout ratio of less than 50% should be able to maintain this trend.

Alternative 2: Panera

Panera Bread Co (NASDAQ:PNRA) is another major player in the “fast casual” space, with about 1,650 bakery-cafes that sell only organic and natural products. Panera serves mainly breakfast and lunch, and unlike Chipotle, franchises its restaurants, which has been another major driver of growth in recent years.

Panera is worth a look because it is valued more reasonably than Chipotle while experiencing a very similar growth rate. Panera is projected to earn $7.04 in EPS this year, which is up 19.5% from last year. Its earnings are expected to increase to $8.15 and $9.81 in 2014 and 2015, respectively, for a three-year forward growth rate of 18.6%. Panera trades at 30.5 times earnings, a significantly lower valuation than Chipotle, and much more attractive for a company with a growth rate of nearly 20%.

Buy, sell, or hold?

While I love Chipotle Mexican Grill, Inc. (NYSE:CMG) as a company and think that its growth will continue for years, albeit at a somewhat slower rate as time goes on, I think that shares may have gotten a little ahead of themselves. I would wait for a significant pullback before jumping in, or I would feel more comfortable investing in one of the not-so-expensive alternatives mentioned here.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill, McDonald’s, and Panera Bread. The Motley Fool owns shares of Chipotle Mexican Grill, McDonald’s, and Panera Bread.

The article This Restaurant Chain Is a Little Too Expensive originally appeared on Fool.com.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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