Mexican restaurant chain Chipotle Mexican Grill (NYSE:CMG) kept rolling its fresh Mexican fare in 2009. Fourth quarter revenues increased 12% while comparable restaurants sales were up 2%. The company's sizzling growth didn't disappoint expectations: net income zoomed 86%. The full year results were similarly impressive. Revenues were up 14% and diluted earnings per share came in at $3.95 - 67% higher than the 2008 figure.
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As a business, Chipotle is first rate. The company's quality food along with its low prices keep the lines long each and every day. As a result, Chipotle has been a growth machine. In 2009, Chipotle opened 121 restaurants. This 15% increase in restaurants brought total store count to 956. Unlike many restaurant chain competitors, Chipotle does not franchise its business. To some, this approach is restricting growth. For now, the company is happy with the status quo and the control over every part of the quality process. And Chipotle's profitability will enable it to expand for years without the need for franchisees. (For related reading, check out Share The Wealth With Franchises.)
A Never Ending Dilemma
While Chipotle is one of my favorite companies, I don't like the stock. Like the company's food, the stock price commands a premium. To be sure, there's a very strong argument to be made in support of the stock price today. With less than 1,000 stores, Chipotle has a superior growth potential for many years ahead. Consider that Chipotle's former majority owner McDonald's (NYSE:MCD) operates over 6,000 stores and has over 25,000 more franchised restaurants. Even Panera Bread (NASDAQ:PNRA), an owner/operator of café's serving fresh pastries, sandwiches, and the like, has over 1200 total stores.
Panera trades for 18 times forward earnings against Chipotle's multiple of 20. But Chipotle arguably has a much stronger growth outlook ahead compared with Panera. Even Starbucks (NASDAQ:SBUX), which can also lay claim to a trendy brand, trades at 18 times forward earnings. Yet Starbucks, with its nearly 9,000 locations, is focusing on more organic growth and fewer store openings.
The Bottom Line
So an investor can do a lot worse than biting into Chipotle at these prices. Still, markets are a fickle thing and businesses aren't perfect. Any temporary hiccup along the way for Chipotle could lead to a much better buying opportunity. For now, I'll just keep buying their burritos and wait to buy the shares later. (For more, check out Sinking Your Teeth Into Restaurant Stocks.)
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