Have investors finished binging on Chipotle?
The outlook may be dimming for this fast-growing chain.
Investors are increasingly bullish about this restaurant chain. However, the current rally might have just pushed the envelope, and we expect this optimism will fade. Chipotle competes mostly with the quick service and casual dining companies such as Chili's, McDonald's (MCD), Burger King, Yum! Brands (YUM) and Papa John's, among others.
The number of Chipotle restaurant outlets has surged from 700 in 2007 to about 1,200 currently. However, this expansion did not come as a surprise. This year the company expects to add about 145 restaurants -- only slightly more than our estimate of 140. In the chart below, you can see our forecast for the number of Chipotle restaurants. (Note that you can drag the trend line to arrive at your own, customized stock price.)
The company also opened its first Asian-cuisine restaurant, ShopHouse Kitchen, in Washington DC. It's yet to be seen whether consumers like the idea of their favorite Mexican restaurant serving them Asian cuisine. Going forward, we also believe the profitability might be affected due to high commodity prices, capital expenditure and increased marketing costs to create brand awareness.
Part of the company's expansion plans are to open more restaurants in Europe. The company opened its first outlet in London earlier this year and soon aims to open one in Paris. However, with the European debt crisis still looming large, these expansions might take a backseat for the time being.
We have a $321 price estimate for Chipotle, which is about 5% below the current market price.
Copyright © 2014 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
The fall in this sector has been so precipitous and lurking that we are just one more big miss and one more ugly deal away from taking down a good portion of the S&P 500.
VIDEO ON MSN MONEY
Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.
Contributors include professional investors and journalists affiliated with MSN Money.
Follow us on Twitter @topstocksmsn.