Chipotle Stock Analysis – How is Chipotle Stock so high?

In marketing, we believe it’s always good to be a big fish in a small pond rather than a small fish in the big sea. And in this upcoming stock analysis, we will have a classic case of big fish in a small pond. It’s all about niche marketing and I believe Chipotle (CMG) is doing just that. If you have not heard of Chipotle, they are a Mexican fast food chain that believes in serving quality food with speed. And they do really well and competitively. In our Chipotle Stock Analysis, we will cover in detail if Chipotle is a stock worthy of our attention. For more on Chipotle, visit their official website.

As always, my goals with this Chipotle Stock Analysis is to keep things simple and straightforward with no bias. Remember to leave a comment at the end of this analysis if you find it helpful…

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Chipotle Stock Analysis – Business Snapshot

Chipotle Stock Analysis Business Snapshot

Chipotle Stock Analysis Business Snapshot

The food business is always a good business model as pricing goes up with inflation. What more… Chipotle is well positioned in the marketplace to serve good food with the right ambients and at the right price. That’s a good combination and a combination Chipotle got it right which reflects well in their popularity. If Chipotle continues to listen to their customers and adapt… then this company has plenty of room to grow. Let’s dive deeper into their financials….

Chipotle Stock Analysis – Earnings Per Share

Chipotle Stock Analysis - 10 year Earnings Per Share History

Chipotle Stock Analysis – 10 year Earnings Per Share History

From 2006 to 2015, Chipotle EPS has grown by 10x. Yep… 10X!!! That puts them into one of the fastest growing companies we have evaluated so far. And the best part of it… it grows year on year consistently with no setback. That’s a real solid 10 year track record. The best we have seen so far…

Chipotle Stock Analysis – Debt Equity Ratio

Chipotle Stock Analysis - Debt Equity Ratio

Chipotle Stock Analysis – Debt Equity Ratio

Strong EPS growth without the need of any financing. With D/E ratio at 0, it seems to me that Chipotle is growing with its own cash and that makes Chipotle even more attractive now.

Chipotle Stock Analysis – Return on Equity

Chipotle Stock Analysis - Return on Equity

Chipotle Stock Analysis – Return on Equity

Our ideal ROE target is 25% average over 3 years. Chipotle came very close to doing just that. Chipotle is surely going to be in our watch list. Just one more thing to confirm their inclusion to our watch list… Let’s take a peak into their operating cash flow…

Chipotle Stock Analysis – Operating Cash Flow

Chipotle Stock Analysis - Operating Cash Flow

Chipotle Stock Analysis – Operating Cash Flow

Ok. That’s it. Chipotle is looking like a great investment. The operating cash flow is positive and growing year on year and that’s all we need to confirm Chipotle place in watch list. However, what is the right price to invest in Chipotle?

Chipotle Stock Analysis – Should You Buy Chipotle Stocks?

The way Chipotle will be evaluated is based on their growth rate and usually buying stocks based on growth rate is the most risky type of valuation. And this is when I am most conservative because growth stocks (as much as I like them) has to be bought at steep discount as one missed earnings will send them dropping like a rock. At a incredible fast growth pace of 31% year on year over the past 10 years, it’s certainly a good price at today’s price but I am not sure if CMG will continue growing 31% for the next 10 years. So it is the growth rate that we will discount to create a margin of safety for ourselves as value investors. Better to be cautious here as growth stocks are the most risky in my opinion…

At the point of this writing, Chipotle is trading at $435 and it’s about 20% higher than our valuation. No doubt Chipotle is a fundamentally strong and growing stock, however, it’s good to practice some patience here. One bad earnings miss can easily send CMG tumbling down. And we just have to wait for that to happen… else there is no entry for us into this good stock. I like this stock now but it’s just too high for entry. We will just wait and I suggest you do the same….

Decide well and Good luck! Also, please leave a comment below as I love to hear from you.

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