Why Chipotle's Stock Is the Bomb

There's no denying that Chipotle Mexican Grill (NYSE: CMG  ) , recent events aside, has been an amazing stock to own over the last few years. But to really appreciate how impressive its stock is, and to get an idea if it's a "buy," we need to look at how the burrito chain compares to its competitors.

 Metric

Chipotle

Industry Average

Industry Rank (out of 30)**

Market Cap

$9 billion

$1.2 billion*

3

5-Year EBITDA Growth (CAGR)

35%

5%

1

Same-Store Sales Growth (MRQ)

8%

3%

5

5-Year Revenue Growth (CAGR)

23%

7%

2

Net Profit Margin

10%

7%

6

Cash and  Equivalents

$456 million

$51 million*

4

Debt

$3.6 million

$222 million*

3

P/E Ratio

34

22

3

Sources: Finviz.com, Screener.co, and Chipotle's 2Q12 Earnings Release. EBITDA = earnings before interest, taxes, depreciation, and amortization. CAGR = compound annual growth rate. MRQ = most recent quarter. *Median substituted for average. **Various industry participants were excluded to achieve a representative sample.

As you can see, Chipotle is at or near the top across the board. Even though it's the third largest publicly traded restaurant in terms of market capitalization -- behind only McDonald's (NYSE: MCD  ) and Yum! Brands, the proprietor of KFC, Pizza Hut, and Taco Bell -- it continues to record stellar growth figures, ranking first in earnings growth, second in revenue growth, and fifth in same-store sales growth.

Its closet competitors here are Buffalo Wild Wings (Nasdaq: BWLD  ) -- which recorded comparable earnings and revenue growth of 28% and 23%, respectively -- and Arcos Dorados (NYSE: ARCO  ) , the largest McDonald's franchisee in Latin America, which recorded monster 10.4% comps for the just-concluded second quarter.

In addition, the chain converts an above average proportion of its sales dollars to profit, as evidenced by its fifth place standing in net margin -- though, for those of you impressed by these things, Chipotle's stellar 10% figure is still only half of McDonald's!

Finally, it sports a balance sheet that would make even first-year business students salivate, with a ridiculous $456 million in cash versus only $3.6 million in debt. Indeed, only Panera Bread (Nasdaq: PNRA  ) and BJ's Restaurants even come close in this regard, with no debt and $222 million and $45 million in cash, respectively. With this in mind, my colleague Andrew Marder recently recommended Panera as one of three companies to replace our burrito-slinging muse.

Is its stock worth the price?
Given these impressive figures, it'd be easy to conclude that Chipotle is a contender for any legitimate portfolio. Yet because of this performance, investors have bid up the price of its shares; it's now the third most expensive restaurant stock according to the price-to-earnings ratio, which reveals how much you have to pay for each dollar of earnings.

Two months ago, I would have urged investors to steer clear, as its shares were trading for a monster 44 times earnings. But after the chain's disappointing earnings release, they're far more affordable, trading at 36 times earnings today. Not to mention, as fellow Fool Jeremy Bowman recently pointed out, the chain hasn't even begun to deploy its arsenal of secret weapons, which are essentially guaranteed to increase the company's revenue and earnings for the foreseeable future.

Personally, as I've said before, I think Chipotle is a steal at the current valuation, which is why I gave it a coveted "outperform" CAPScall. Yet each investor and portfolio is different, and only you can answer this question yourself. Prior to doing so, however, I urge you to download our recently released free report about three stocks that our analysts are calling "middle-class millionaire-makers." Click here to view the free report.

Fool contributor John Maxfield loves Chipotle burritos but doesn't own their, or any other aforementioned company's, stock. The Motley Fool owns shares of Arcos Dorados Holding, Chipotle Mexican Grill, McDonald's, Panera Bread, and Buffalo Wild Wings. Motley Fool newsletter services have recommended buying shares of Chipotle Mexican Grill, Buffalo Wild Wings, Panera Bread, and McDonald's. Motley Fool newsletter services have recommended writing covered calls on Buffalo Wild Wings. The Motley Fool has a disclosure policy

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (6) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On August 09, 2012, at 7:34 PM, SuntanIronMan wrote:

    Third largest in market capitalization? What about Starbucks (which is a couple billion ahead of Yum! Brands)?

  • Report this Comment On August 09, 2012, at 7:38 PM, SuntanIronMan wrote:

    Oh, I just noticed the note at the bottom of the chart:

    "Various industry participants were excluded to achieve a representative sample."

    Okay. That's makes a little more sense. Though still not exactly sure why Starbucks was excluded. Is it because Starbucks is mostly a beverage-restaurant rather than a food-restaurant?

  • Report this Comment On August 09, 2012, at 11:22 PM, JohnMaxfield37 wrote:

    You're exactly right. I excluded it because it's not as apples to apples since it's primarily beverages. In retrospect I should have made that clearer, because Starbucks is obviously a big player here.

  • Report this Comment On August 09, 2012, at 11:55 PM, SuntanIronMan wrote:

    Gotcha. Thanks for clarifying that.

  • Report this Comment On August 12, 2012, at 9:56 PM, neamakri wrote:

    "it's now the third most expensive restaurant stock according to the price-to-earnings ratio"

    Uh, doesn't that means it ranks 27th out of 30?

  • Report this Comment On August 13, 2012, at 2:18 AM, JohnMaxfield37 wrote:

    In other words, it has the third highest P/E ratio.

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