Chipotle Mexican Grill (NYSE:CMG) reported its financial results for the fourth quarter and full year ended Dec. 31, 2011. During the quarter, revenues increased by 23.7% to $597 million while net income grew by 24% to $58 million. Diluted EPS for the quarter was $1.81. Analysts were expecting EPS of $1.83 in the quarter on revenues of $591 million.

Investopedia Markets: Explore the best one-stop source for financial news, quotes and insights.

No Surprises
The fact that Chipotle beat estimates on the revenue front and missed on the EPS estimate is really no surprise. The strong sales figures had to absorb higher food costs during the quarter, which came in at 32.2%, up 1.2 percentage points as a result of higher commodity costs. For the full year, food costs were up nearly 2 percentage points.

Yet thanks to strong customer traffic and stronger sales volume, overall restaurant operating margins were 26%, down only 70 basis points as higher food costs were somewhat mitigated by stronger restaurant sales. Chipotle ended the year with 1,230 restaurants, opening 150 new location in 2011, including one ShopHouse, the company's newest concept. (For related reading, see How To Analyze Restaurant Stocks.)

Still Sizzling
Looking ahead in 2012, Chipotle plans to open between 155-165 new restaurants. The company is forecasting mid-single-digit comparable restaurant sales growth. That compares with 11% comp sales in 2012. This forecast is likely a very conservative figure.

Unfortunately, while the business of Chipotle will likely do very well in 2012, an investment in Chipotle may not be as hot. After hours, shares declined 2% on the earnings news. Still, Chipotle remains one of the most expensive restaurant stocks trading at over 55 times 2011 earnings. While Chipotle's amazing growth is deserving of a strong valuation, shares of Bread Company (Nasdaq:PNRA) trades for 33 times 2011 earnings.

Even Starbucks (Nasdaq:SBUX), which is enjoying a great comeback thanks to the return of founder Schultz trades at half the valuation of Chipotle. It's even hard to ignore McDonald's (NYSE:MCD), Chipotle's former parent, trading at about 19 times earnings and yielding 2.8%. McDonald's is not growing like Chipotle, but Mickey D's is thriving in this environment.

Chipotle is an excellent business thriving in a very tough industry. It's doubtful that any restaurant or hospitality business can match Chipotle's growth at the moment, and Wall Street has elevated the share price to new highs as a result. While even a slowdown in Chipotle's growth would be viewed as excellent growth in the restaurant industry, Chipotle's valuation may cool off if the company is entering the next phase of its growth cycle.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

At the time of writing, Sham Gad did not own shares in any of the companies mentioned in this article.

Related Articles
  1. Stock Analysis

    Analyzing Altria's Return on Equity (ROE) (MO)

    Learn about Altria Group's return on equity (ROE) and analyze net profit margin, asset turnover and financial leverage to determine what is causing its high ROE.
  2. Investing News

    Icahn's Bet on Cheniere Energy: Should You Follow?

    Investing legend Carl Icahn continues to lose money on Cheniere Energy, but he's increasing his stake. Should you follow his lead?
  3. Stock Analysis

    Analyzing Google's Return on Equity (ROE) (GOOGL)

    Learn about Alphabet's return on equity. How has its ROE changed over time, how does it compare to its peers and what factors are driving ROE for the company?
  4. Investing News

    Is Buffett's Bet on Oil Right for You? (XOM, PSX)

    Oil stocks are getting trounced, but Warren Buffett still likes one of them. Should you follow the leader?
  5. Investing News

    Chipotle Served with Criminal Probe

    Chipotle's beat muted expectations and got a clear bill from the CDC, but it now appears that an investigation into its E.coli breakout has expanded.
  6. Stock Analysis

    Analyzing Sprint Corp's Return on Equity (ROE) (S)

    Learn about Sprint's return on equity. Find out why its ROE is negative and how asset turnover and financial leverage impact ROE relative to Sprint's peers.
  7. Stock Analysis

    Why Alphabet is the Best of the 'FANGs' for 2016

    Alphabet just impressed the street, but is it the best FANG stock?
  8. Investing News

    A 2016 Outlook: What January 2009 Can Teach Us

    January 2009 and January 2016 were similar from an investment standpoint, but from a forward-looking perspective, they were very different.
  9. Mutual Funds & ETFs

    3 Vanguard Equity Fund Underperformers

    Discover three funds from Vanguard Group that consistently underperform their indexes. Learn how consistent most Vanguard low-fee funds are at matching their indexes.
  10. Investing News

    Alphabet Earnings Beat Expectations (GOOGL, AAPL)

    Alphabet's earnings crush analysts' expectations; now bigger than Apple?
RELATED FAQS
  1. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  4. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  5. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>
  6. What is the difference between issued share capital and subscribed share capital?

    The difference between subscribed share capital and issued share capital is the former relates to the amount of stock for ... Read Full Answer >>
COMPANIES IN THIS ARTICLE
Trading Center