Chiptole (CMG) blows earnings away

Chipotle is a one of my favorite fast food restaurants and I am pleased to be a shareholder as well, especially after the wonderful results they announced earlier this week. They literally blew away all expectations.

  • Revenue for the quarter came in at $1.05B which is +28.6% YoY
  • Q2 EPS came in at $3.50 which beat expectations by $0.41

The stock has responded very well to the results going up over 10% and hitting an all time high of $667.90 and currently around $660.00

But can this be sustained? Let look into more detail. 

Chipotle (CMG) is not a dividend stock. I got the stock back in 2012 and still hold it. Even though the company had its ups and downs, it has been able to grow consistently and reliably for the last few quarters. The company was held by McDonalds (MCD) before it went IPO in 2006. Since then the stock has gone up by over 1300%. Currently Chipotle has over 1600 restaurants and is targeting to open around 180-195 results in 2014. Comparing the number of restaurants to McDonalds and other food joints, Chipotle has a long growth ahead. And international growth opportunities have not been tapped yet.

Chipotle is also testing other cuisines. Shophouse brand (Asian) and Pizzeria Locale (Pizza) are couple of brands that have been launched, but just in test markets. In the long run, this could become like YUM that has Taco Bell, KFC and Pizza Hut.

But the company/stock is not without its problems.

  • The stock trades at a very high P/E of 58 which is very high compared to its peers. Of course, Chipotle is a growth stock compared to McDonalds and other restaurants which are past its high growth stage. Hence a higher P/E can be reasonable.
  • Chipotle operates in the fast-casual segment and competes with restaurants like Panera Bread (PNRA) and lot of upcoming restaurants.
  • Lately Chipotle has been able to pass on the food costs to consumers without affecting sales and margins and this is one of the reasons for its huge quarterly results. But being a fast-casual restaurant, the price can only be increased by so much before people stop coming. So it is a fine line and it will be challenging for Chipotle to maintain its costs especially since it promises food with integrity.

Maybe Chipotle is the new McDonalds that will offer huge growth for years to come. Maybe not. We will have to wait and see.

Disclosure: Long on CMG, MCD

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4 thoughts on “Chiptole (CMG) blows earnings away

  1. It really seems like more and more consumers are voting with their wallet in terms of wanting higher quality food even if it means paying a higher price. Steve Ells was on Mad Money earlier this week and that’s one of the few good things about that show. The access to CEOs of well known companies even if you don’t get to participate in the interviews themselves. I’d like to own CMG in the future but a 58 P/E is a bit out of my valuation range. I’ll probably regret waiting on this one although it might just take one bad quarter to knock it down to a reasonable level.

    • A P/E of 58 is high and you are correct that it will probably take just one quarter for the stock to come down. I got the shares on one such occasion myself when the stock took a hit in Oct 2012 after the results.

    • Yeah…. the valuations are high right now. I got it back in Oct 2012. But got it after a bad quarter when the stock had taken a hit.
      If the new concepts take off and expand, it will be really interesting to see where they go.
      Thanks for stopping by.

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