Can Chipotle's amazing run continue?
The stock is awfully expensive. Are there better buys, or is Chipotle just starting to hit big?
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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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!
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.
wish i played the stock morket from what im reading about chipotle"s...
WTF is wrong with you? Q is Pig sh%^ compared to Chipotle...
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.
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For years, Todd Mills pushed Frito-Lay to make taco shells from Doritos. He died from a brain tumor on Thanksgiving.
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