Is This Restaurant the Next Chipotle Mexican Grill?

We all want to find the next Chipotle Mexican Grill (NYSE: CMG  ) . When a little "fresh Mex" chain like Chuy's Holdings (NASDAQ: CHUY  ) comes around with only 47 locations and dizzying growth percentages, it's natural to get excited. Don't let the sky-high P/E ratio fool you. Chuy's may be a great bet.

Chuy's Last Reported Results
Chuy's reported its third-quarter results on Oct. 30. Revenue leaped 19% to $53.5 million. Same-store-sales jumped 3.1%. Adjusted net income soared 26.6% to $2.8 million or $0.17 per share.

Chuy's ended the quarter with 47 restaurants and expects to add another one by the end of the year. For 2014, it is targeting 10 to 11 more restaurants or a 20.8% to 22.9% increase.

Compare to Chipotle's Results
Chipotle Mexican Grill reported its third-quarter results on Oct. 17. Revenue spiked 18% to $826.9 million. Same-store-sales leaped 6.2%. Net income climbed 15.3% to $83.4 million or $2.66 per share.

Chipotle ended the quarter with 1,539 restaurants and expects to end 2013 with a total of 1575 to 1590 restaurants. For 2014, it is targeting another 180 to 195 more restaurants or around a 12% increase.

Breaking it all down
If you annualize last quarter's net income, you get $11.2 million for Chuy's and $333.6 million for Chipotle. That means Chuy's earned an average annualized rate of net income of around $238,000 per location while Chipotle saw an average of $217,000.

Chuy's has a market cap of around $571 million and Chipotle has a market cap of $16.21 billion. For Chuy's, this means its market cap is around $12.1 million per restaurant. For Chipotle, that puts the market cap at around $10.5 million per restaurant.

Both companies have similar net income and valuation on a per location basis. Both companies grew their overall sales at around the same pace. Chipotle grew same-store sales at around double the pace. However, as pointed out by Jon Howie in the conference call, Chuy's same-store sales are going to be a bit misleading. Due to the young age of most of its restaurants, a large percentage of them will be compared to their "honeymoon period."

Chuy's grew its new restaurant total at nearly twice the pace as Chipotle Mexican Grill. As Chuy's grows from such small numbers, it can start to get some leverage. This means more potential net income per restaurant. CFO Jon Howie stated, "The labor will continue to increase until approximately 2015 or 2016, we're going to see it flatten out, and then hopefully we'll gain some leverage at that point.

While Chipotle's growth is nothing short of fantastic, it's gotten so large that it's more difficult for it to grow by larger percentage numbers than Chuy's. When asked in the conference call about how 20% additional growth in 2015 is looked, Chuy's CEO Steve Hislop responded, "We're looking very, very good through '15 and even some of our stores we're already working for '16." Sounds like even 2016 will continue to show acceleration. 

Mexican cuisine is hot
The Mexican food space seems like a bright spot in the restaurant industry right now.  For example, Taco Bell of Yum! Brands (NYSE: YUM  ) is seeing success.  Yum! Brands considers itself "the global leaders of the chicken, pizza and Mexican-style food categories."  Yet it was its Taco Bell concept that is performing particularly well.  Last quarter its Pizza Hut and KFC brands saw declines in same-store sales of 1% and 4% respectively, but Yum! Brands' Taco Bell saw a 2% increase.  It was the seventh quarter in a row of positive same-store sales growth. 

Foolish final thoughts
The individual components of Chuy's and Chipotle are close, which may lead you to believe they are similar investments. However, Chuy's small size and aggressive growth gives it the potential to outperform going forward, and Chipotle's large size and established national recognition offers safety and less risk.

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