Chipotle Can’t Be Heading for $1,000. Can It?

I was going to write this article several days ago, but I've been busy banging my head against the wall for the past week for not being long Chipotle Mexican Grill (NYSE: CMG  ) . Now as I've been watching the stock explode in horror, I have to wonder if $1,000 per share is possible by looking at the numbers as I have yet to try the food.

 You see, I had been meaning to stop in one and do some culinary sampling at some point before the earnings report, but I kept running into lines out the door, sometimes literally, and decided not to wait. That alone should have been an eye-opener to forget the food and just go sample the stock instead. Crowds like this are surreal, especially while its former parent, McDonald's (NYSE: MCD  ) , often looks like a ghost town in comparison.

Chipotle Mexican Grill's results
On Jan. 30, Chipotle reported its fourth-quarter fiscal results. Revenue leaped 20.7% to $844.1 million. Same-store sales jumped 9.3%. Net income exploded 29.8% to $79.6 million or $2.53 per diluted share. The results were nothing short of fantastic.

Of particular note, the same-store sales were the largest I've seen from almost any major restaurant chain regardless of size in quite a long time. As an example, compared to McDonald's lately, there is no comparison. McDonald's saw its third-quarter domestic same-store sales rise by just 0.7%. October inched up just 0.2%, November slipped 0.8%, and for the entire calendar period fourth-quarter sales slid by 1.4%. December alone must have been a disaster for same-store sales at McDonald's.

Chipotle credited the same-store sales jump mostly to an increase in guest traffic. The company forecast additional same-store sales gains throughout 2014 and the addition of 180 to 195 new restaurants, bringing the total to 1,775 to 1,790. It seems like Chipotle still has a low number of stores compared to where it could be headed.

Expansion
Right now, Chipotle Mexican Grill only has 16 international locations with "few additional restaurants planned for 2014." CEO Steve Ells added, "For the foreseeable future, however, our growth will be driven primarily by opening Chipotle restaurants in the United States." This implies that Chipotle still has a long way to go to expand in the United States and then the world. At 1,790 locations, that's an average of less than 36 per state.

It's hard not to imagine that there's room eventually for triple the number of restaurants at a bare minimum, especially when factoring in international expansion down the road. McDonald's, as an example, has around 60% of its restaurants outside of the United States.

Take triple the number of restaurants and use a very conservative 10% same-store sales increase (Chipotle is calling for single digits this year alone before any price increases it initiates which sounds like a hint this will happen). Analysts expect Chipotle to earn $12.92 per share for 2014. Even if you assume no leverage in fixed costs or the natural economies of scale that bigger operations tend to have as they buy ingredients in bulk, then Chipotle's earnings per share should grow at the same speed as its restaurant growth.

Take that $12.92, multiply it by the 10% growth in same-store sales, and then triple the total for triple the number of restaurants. You should get $42.64 per share. Now take a look at The Wendy's Company (NASDAQ: WEN  ) . Analysts estimate Wendy's will report earnings per share of $0.33 for 2014 and Wendy's trades with a P/E ratio of 26. This estimate represents 22.2% growth over the fiscal 2013 estimate for Wendy's which is earnings growth similar to that of Chipotle.

Foolish final thoughts
If Chipotle eventually earns $42.64 per share, a share price of $1,000 would result in a P/E ratio of 23.5, less than that of Wendy's. Just to emphasize: $1,000 is not a target price or a forecast, this analysis is to see if it's even possible if Chipotle executes flawlessly. It seems possible. Whether Chipotle will succeed is years away from being seen. Fools should take note that at the current price Chipotle's P/E ratio seems a bit steep in the 40s though long-term the current price has an excellent chance of looking cheap in hindsight. Watch the numbers and watch your local Chipotle. Oh, and if you see a woman banging her head against the wall inside, say hello. It's probably me.

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