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Chipotle Mexican Grill, Inc. (CMG), Yum! Brands, Inc. (YUM), McDonald’s Corporation (MCD): Is This High-Growth Restaurant Company Resilient?

When the vast majority of stocks appreciate for several consecutive years, it can be difficult to determine which companies are for real and which companies are simply riding the wave. Chipotle Mexican Grill, Inc. (NYSE:CMG) clearly fits into one of these categories.

A unique concept

If you had approached someone in the 1980’s and told them there would be a healthy and popular Mexican fast-food chain in the future, they would have laughed at you and brushed you off. Your feelings would have been hurt, and you would have quit making prophetic statements. However, if you were patient enough, you would have been proven correct.

Chipotle Mexican Grill, Inc. (NYSE:CMG)

Chipotle Mexican Grill, Inc. (NYSE:CMG) takes a unique approach to its operation. Of course, some of its produce items are organically grown, and almost all of it is secured locally (within 350 miles). Chipotle also promotes animal welfare and is environmentally friendly. All of this is great, but another major selling point is the atmosphere.

Instead of taking the traditional fast-food restaurant approach for décor, Chipotle Mexican Grill, Inc. (NYSE:CMG) used fine-dining restaurants as inspiration. This comfortable and appealing atmosphere makes you feel as though you’re eating somewhere nicer than a fast-foot restaurant, yet you’re still paying fast-food prices. This has been a key to the company’s success. And with demand high, it makes sense for Chipotle to want more.

Consistent growth

Chipotle Mexican Grill, Inc. (NYSE:CMG) opened 44 restaurants in the second quarter. While this growth isn’t as aggressive as last year’s second quarter (55 restaurants opened), it’s still a positive sign. It also contributes to revenue growth. However, keep in mind that newer restaurants usually have lower margins due to high expenses and growing pains related to operating efficiencies.

Chipotle Mexican Grill, Inc. (NYSE:CMG) now has 1,502 restaurants total, with 1,490 of them in the United States. You might look at the high domestic exposure as a negative, but it’s actually a positive. Chipotle has barely tapped into the international market (Canada, England, France), which means there is still a ton of international growth opportunity.

Chipotle also has two ShopHouse Southeast Asian Kitchen restaurants, and it plans on opening four more locations by year end. Over the long haul, it’s possible that Chipotle becomes similar to a Yum! Brands, Inc. (NYSE:YUM), which owns market-leading brands Taco Bell, KFC, and Pizza Hut. Chipotle might take a slightly different route in regards to cuisine, and a much different route for food quality.

Overall, Chipotle aims to open 165 to 180 restaurants by year end. This, in turn, should help the top line. In Q2 FY 2013, average restaurant sales were $2.1 million, which was a slight increase over the year-ago quarter.

For the second quarter, all-important comps increased 5.5%, which was impressive, but it wasn’t as impressive as the 8% gain seen in the year-ago quarter. Chipotle expects full-year comps to come in between the low-and mid-single digits. It should also be noted that Chipotle aims to grow using its catering service, which was launched in select locations in the first half and should be available at all restaurants by the end of the year.

The only bad news you can find for Chipotle (as a company, not a stock) is food-cost inflation. Management expects this trend to continue throughout the remainder of the year, but it shouldn’t play a significant role on the stock price. A more concerning factor exists in that regard.

A somewhat risky investment

If you’re the type of person who ignores valuation and broader market conditions, then the following information might not concern you. However, this information matters.

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