Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Is Chuy’s Holdings Inc (CHUY) Worth a Bite?

Chipotle or Red Robin path

For restaurants, it can be difficult to find comparative public stocks for analysis. In this case, Chipotle Mexican Grill, Inc. (NYSE:CMG) offers a view of a Mexican chain with a somewhat similar price point while Red Robin offers a similar full-scale restaurant. Both are even more compelling considering the close location with the visited restaurant. These two stocks also offer glimpses of what happens when growth paths create different outcomes.

Though Chipotle Mexican Grill, Inc. (NYSE:CMG) offers more of a fast-casual Mexican concept than a full-service restaurant, it does offer insight into what the valuation of a successful operation can maintain. In the latest quarter, the company had 1,458 stores with revenue growing 13% to $727 million. More importantly, the stock has been able to maintain a multiple of over 3 times revenue even with a valuation of $11 billion. Revenue growth expectations remain strong at over 15% during the next couple of years. The stock maintains a relatively high forward multiple of 28 times estimates and during the heyday of growth it had valuations comparable to that of Chuy’s Holdings Inc (NASDAQ:CHUY) that sits around 48 now.

As mentioned above, Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) though more of a burger joint competes in the same general areas for a similar customer price point. Chuy’s Holdings Inc (NASDAQ:CHUY) though hopes to not take the same path as Red Robin. The burger joint saw its stock max out back in 2005 at over $60 and is only now re-approaching that level eight years later. Though Red Robin has nearly 10 times the store base it has a similar market cap. With revenue expected to exceed $1 billion this year, the concept only trades at a market cap of $764 million and actually trades at an expensive forward multiple of 21 times.

Bottom line

Any investors discovering Chuy’s Holdings Inc (NASDAQ:CHUY) back around the IPO price are probably celebrating at the current prices and maybe even unloading stock like the shareholders from the secondary offerings. For other investors decisions have to be made as to whether the company will take the growth path similar to Chipotle or max out like Red Robin did at these valuation levels. The exiting shareholders clearly think the valuation could be maxing out even though the company only has stores in nine states with significant growth opportunities ahead. Investors might be wise to load up on dips, but it’s very noteworthy that the stock hasn’t dipped at the end of June during the taper tantrum selloff.


Mark Holder and Stone Fox Capital Advisors, LLC have no positions in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and Red Robin Gourmet Burgers. The Motley Fool owns shares of Chipotle Mexican Grill.
Mark is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Is Chuy’s (NASDAQ:CHUY) Worth a Bite? originally appeared on Fool.com is written by Mark Holder.

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

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.