Can Chipotle's amazing run continue?

The stock is awfully expensive. Are there better buys, or is Chipotle just starting to hit big?

By Kim Peterson Mar 27, 2012 4:17PM
This has been the year of Chipotle Mexican Grill (CMG). The stock is an absolute superstar, hitting 37 new record highs so far, according to CNBC.

Chipotle shares traded at $421.37 Tuesday, and are up nearly 26% this year. Over the last 12 months, the stock has gained 65%.

Truly amazing. Chipotle's run has obviously been the subject of much chatter among investors. Why is this stock so high, and how much further can it go?

There are two schools of thought. First is that Chipotle is just too expensive and simply can't maintain this growth. The other is that Chipotle's numbers are just headed up, and the stock has room to grow as well. I'll go over both lines of thinking in more detail below.

This stock is expensive

No one disputes that Chipotle is pricey. But is it worth that valuation? No, says Will Ashworth at InvestorPlace. One reason is because Chipotle is getting some tough new competition soon from Qdoba Mexican Grill, owned by Jack in the Box (JACK).

And Jack in the Box has big plans for Qdoba. It wants to increase the number of Qdoba restaurants to 2,000 from about 597 now, Ashworth reports. Chipotle is on a similar kick, planning to add at least 155 stores this year to the 1,230 already open.

It's getting harder for both companies to find prime real estate for the new locations, Ashworth writes.

Then there's new competition from Taco Bell, owned by Yum Brands (YUM). Taco Bell isn't about to give up any ground in the Mexican fast-food business, and is testing a new Cantina Bell menu with premium ingredients and higher-quality offerings.

Chipotle's price-to-earnings ratio is a fairly ridiculous 62.8. The industry averages 25.8, according to The Motley Fool.

But look at the potential

But others think the stock has plenty of room. Chipotle's same-store sales growth was 11.2% in 2011, 9.4% in 2010 and 2.2% in 2009, the Motley Fool reports.

And you can't talk about Chipotle's growth without mentioning ShopHouse, the Asian-themed restaurant the company has opened in Washington D.C. ShopHouse has been wildly popular with little to no advertising.

The success had opened up the possibility that Chipotle could very well strike gold a second time. The company isn't saying much about whether it will expand ShopHouse, but investors are certainly pricing the idea into Chipotle shares.

Chipotle has no debt and about $400 million in cash, according to Seeking Alpha. And Chipotle is in that best-of-both worlds position because it can compete directly with fast food, but also stand up against more upscale restaurants, such as Panera Bread (PNRA).

Finally, Chipotle is gunning for international expansion, recently opening new locations in London and planning one for Paris.

So what do you think, readers? Is this a stock to avoid or a stock that is just starting to hit the bigtime?

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36Comments
Mar 27, 2012 5:48PM
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I like Chipotle and I don't think it is that expensive.
Mar 27, 2012 8:33PM
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If the only threats to Chipotle are from the likes of Qdoba and Taco Bell, do we even need to know what their upside is?!!!  Qdoba actually just opened up right down the street.  I was excited to have another once-in-a-while go to spot.  Went there once, and can't imagine ever returning.  It was edible, but just so blah.  Did nothing for me, and the portions were smaller.  With a Chipotle 500 yards away I would be utterly shocked if this Qdoba lasts longer than their initial lease term.  And Taco Bell?!  Actually just went there today!  The 'Bell is good when you're working, in a rush, and just need that shot of beans.  But if you were to actually order something comparable to a chicken burrito from Chipotle, say a 'Grilled Stuffed Chicken Burrito' it would cost you as much, and would lack all the taste, size, freshness, and nutritional value of a Chipotle burrito -- not that anyone cares about all that. 

 

Bottom line: Chipotle is in the 2nd inning of a game without an opponent.  Not to mention ShopHouse is supposedly sick!

Mar 27, 2012 6:52PM
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Chipoltle believes in good ingredients and I don't see that ever changing...  I don't trust Jack in the Box or Taco Bell with their ingredients even if they start out with good high quality ingredients for their Qdoba and Cantina bell you know they will eventually start using low cost ingredients as soon as they think they can get away with it.  It's in their nature, look at the crap Taco Bell uses in their food, there beef is not even 100% beef and its taco shells ingredients were found in dog food..

 

I don't see either of these stores giving Chipoltle any serious challenge.

Mar 27, 2012 7:18PM
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Taco bells food is cheap because they use pink slime and a piller of fillers and call it meat
Mar 28, 2012 11:08AM
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The quality of Chipotle's ingredients is what sets it apart from the others. Fresh, local and organic. I would rather pay more for quality food, than less for mediocre food.
Mar 27, 2012 8:49PM
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Wow I should have bought some Chipotle stock.  I hate going there because they are always packed that's why the stock is high. The food is simple and delicious and nothing dipped in vats of fat like fast food restaurants.
Mar 28, 2012 9:53AM
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C'mon!  They buy locally and use free range and grass fed.  You are able to build to your liking, they now have brown rice, and they will stir up your burrito if you ask them to.  Guac is kind of expensive, but again made fresh with the best avacados.  There is room for growth!  Tell the world!
Mar 27, 2012 6:59PM
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wish i played the stock morket from what im reading about chipotle"s...

 

Mar 27, 2012 10:12PM
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You didn't mention it's growth also due to the client base of people with allergies.  There are not too many places I can go with my daughter who has nut allergies without worrying about cross-contamination.  With allergies on the rise, that is good business!!!
Mar 27, 2012 5:57PM
Mar 28, 2012 9:17AM
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They win with a simple menu and the fact that you see the food before its wrapped in your burrito.

 

In a world where people worry about fillers, pink slime, and genetically changed food items, chipotle wins because their food looks like food and you see it assembled before you.

 

Add the signs promoting buying from local farmers and grass fed animals and you attract a clientale who feel better about them selves for shopping there.

 

We have one down the street from where we live and occassionally get Buy 1 get 1 promos but even if we don't get those, we probably go once a month.

 

I love the new brown rice option they rolled out like a year ago.

Mar 27, 2012 8:35PM
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We have a Chipotle right down the street from our offices.  I eat there all the time.  That and Tijuana Flats are awesome!
Mar 28, 2012 10:57AM
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i love chipotle... hell - they can put one on every street corner for all i care.
Mar 27, 2012 7:02PM
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If they were waiting for me to eat there, they'd be out of bizz not saying its bad or good but with prices of everything and gas I can make it all at home , and no whats in it, Ok thats it :  )
Mar 27, 2012 6:02PM
Mar 27, 2012 8:36PM
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Taco Bell is the nastiest food ever created.  Its been a decade or more since I ate that garbage.
Mar 27, 2012 6:00PM
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JustSayinSo,

 

WTF is wrong with you? Q is Pig sh%^ compared to Chipotle...

Mar 27, 2012 6:47PM
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  They already have run an article where Chipotle CEO admitted that commodity cost have pinched them but they are afraid to pass those costs on to the consumer just yet.  Well with missed earnings last quarter , new competition eating up same store sales, and now demanding investors something has to give.  There food is good but I already see less people eating there and at $8 a burrito stuffed with rice and minimal meat I don't see it lasting even with the amount of sheep that eat there.  This has been a hedge fund favorite though which means you can expect a massive drop once the party is overas they exit together.
Mar 28, 2012 12:00AM
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bought there stock over a year ago proved one of the best performers I have had. Never ate there though.
Mar 27, 2012 8:12PM
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Everyone talks about the fresh ingredients of Chipotle, but really have you looked at the fat content in their Chicken Taco. Same if not worse then Taco Bell..  Also there selection is limited. They are a 2 Billion $ company and their stock price is $400 plus - rediculous
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