It makes sense to pay for that speedy growth. Panera is right next to Chipotle with an annual earnings growth of roughly 16%. But keep in mind that Panera is half the market cap of Chipotle. It’s easier to grow when you’re small. Things become more difficult as you grow in size.
Most people probably don’t remember this, but Chipotle Mexican Grill, Inc. (NYSE:CMG) was spun off from McDonald’s Corporation (NYSE:MCD). The people running it are some of the world’s best in the quick-service restaurant industry. And they’re also shareholder oriented — in the first quarter of 2013, the company bought back 164,000 shares worth $51 million. During February, the company announced the addition of $100 million to the existing share repurchase program.
Panera is also an aggressive buyer of its shares. The major problem with Panera Bread Co (NASDAQ:PNRA) is that its share buy back program is in a strong downtrend. In 2010, management bought $125 million worth of shares. In 2011, that number decreased to $95 million, and in 2012, it was a mere $25 million. I always like to find share buy back programs in an uptrend such as in the case of Chipotle Mexican Grill, Inc. (NYSE:CMG), and not in a downtrend as in the case with Panera.
Einhorn and Gundlach are shorting a highly profitable company with rapidly rising sales and earnings and great management. I believe that you can’t short a fantastic business run by great people just because the P/E ratio is a little rich, especially in the current bull market environment. Eventually, the market will decide who’s right.
The article Mr. Einhorn, You’re Wrong On Chipotle! originally appeared on Fool.com and is written by Shmulik Karpf.
Shmulik Karpf 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. Shmulik is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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