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Chipotle Is On Fire
Chipotle Mexican Grill (NYSE:CMG) continues to sell more and more of it fast and fresh Mexican fare. Chipotle is currently operating in its own world, as if the economy is firing on all cylinders. The company's third quarter results were another homerun for fast growing chain of burritos and tacos. Even more so, the number of new store openings can be expected to increase at an accelerated pace.
Rollin Fresh
During the third quarter, sales were up by 23% while same store restaurant sales were up by an amazing 11.4%. Even better, Chipotle incrementally made more on those sales as operating margin was up by 220 basis points to 27.7%. The net result was a net profit of $48 million in the quarter, 40% higher than a year ago. For the nine month period, the results were just as impressive. Even more pleasing to Wall Street, the company is anticipating opening 135-145 new restaurants in 2011 up from the approximate 120-130 locations that will open in 2010. Add all this up and you have a share price that surged 15% on the earnings release.
Burritos are the Better Bargain
Despite Chipotle's continued share run up, which has occurred in spite of my cautious outlook with regards to the share price, the company's fresh burritos seem to be the better buy today. Shares, trading near $200, value Chipotle at $6.4 billion and nearly 40 times earnings. With just over 1,000 restaurants Chipotle certainly has significant growth in its future. Consumers have definitely accepted the health benefits and better taste of the company's all natural, locally sourced foods and the opportunity is huge.
Yum! Brands (Nasdaq:YUM) has over 37,000 restaurants under its various brands. The Wendy's/Arby's (NYSE:WEN) has almost 10,000 restaurants under its two flagship names. So the room for Chipotle's different approach to fast food is enormous. But with shares trading at 40 times earnings, 3.5 times sales, and nearly 7.5 times book value, there's not much room for error in execution.
On the other hand, Darden Restaurants (NYSE:DRI), which operates nearly 1800 restaurants including Longhorn Steakhouse and Red Lobster, yields 2.9% and trades for 16 times earnings.
Too Much Premium
Chipotle's phenomenal business model certainly merit a premium valuation on the stock, but as shares approach $200, any pullback could give investors indigestion.(For more stock analysis, see BIG Dividends, BIG Returns.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
Rollin Fresh
During the third quarter, sales were up by 23% while same store restaurant sales were up by an amazing 11.4%. Even better, Chipotle incrementally made more on those sales as operating margin was up by 220 basis points to 27.7%. The net result was a net profit of $48 million in the quarter, 40% higher than a year ago. For the nine month period, the results were just as impressive. Even more pleasing to Wall Street, the company is anticipating opening 135-145 new restaurants in 2011 up from the approximate 120-130 locations that will open in 2010. Add all this up and you have a share price that surged 15% on the earnings release.
Burritos are the Better Bargain
Despite Chipotle's continued share run up, which has occurred in spite of my cautious outlook with regards to the share price, the company's fresh burritos seem to be the better buy today. Shares, trading near $200, value Chipotle at $6.4 billion and nearly 40 times earnings. With just over 1,000 restaurants Chipotle certainly has significant growth in its future. Consumers have definitely accepted the health benefits and better taste of the company's all natural, locally sourced foods and the opportunity is huge.
Yum! Brands (Nasdaq:YUM) has over 37,000 restaurants under its various brands. The Wendy's/Arby's (NYSE:WEN) has almost 10,000 restaurants under its two flagship names. So the room for Chipotle's different approach to fast food is enormous. But with shares trading at 40 times earnings, 3.5 times sales, and nearly 7.5 times book value, there's not much room for error in execution.
Too Much Premium
Chipotle's phenomenal business model certainly merit a premium valuation on the stock, but as shares approach $200, any pullback could give investors indigestion.(For more stock analysis, see BIG Dividends, BIG Returns.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Sham Gad
Sham Gad is the Managing Partner of Gad Partners Fund's, value inspired investment partnerships modeled after the Buffett Partnerships of the 1950's. Previously, Gad ran the Gad Investment Group and delivered annualized returns of 22% from 2002 to 2005. Gad is also the author of "The Business of Value Investing" which will be out in the fall of 2009. Gad earned his MBA at the University of Georgia in May of 2007. Gad runs a value investing blog. He can also be reached by visiting the Gad Partners Funds site. When not writing or analyzing businesses, Gad enjoys hanging out with his wife Maggie, reading, golf, and yoga
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