Is Chipotle Overstuffed With Optimism?

Chipotle (NYSE: CMG  ) (NYSE: CMG-B  ) has been on a real roll lately -- enough to make some investors wonder whether it's getting too hot too handle. However, third-quarter results packed a tasty kick and didn't give any indications that the burrito bonanza's falling apart just yet.

Third-quarter net income increased 74.6% to $20.6 million, or $0.62 per share. Revenues increased 35.6% to $286.4 million, with same-store restaurant sales up 12.4%. In more good news, Chipotle was able to increase operating margins from 21.5% to 23%, and it decreased general and administrative expenses from 7.4% of revenue to 6.7%.

Chipotle has been quite a success story since it was separated from former parent McDonald's (NYSE: MCD  ) , even in an environment in which some quick-serve companies haven't fared so well. One might look no further than Wendy's (NYSE: WEN  ) , which has had a struggle on its hands lately and even sold off its own Mexican quick-serve chain, Baja Fresh. Even Starbucks (Nasdaq: SBUX  ) has had some growing pains lately, and many investors aren't nearly as enamored with that company as they used to be.

Chipotle's success is evident in the stock's meteoric rise -- it's up 137% in the past 12 months. Of course, that big climb has given many investors food for thought when it comes to whether Chipotle's getting a little bit ahead of itself.

After all, it's trading at a whopping 82 times trailing earnings and 55 times forward earnings. Its PEG ratio is 2.52, well exceeding the level that usually signals a value-priced stock. True, there's a lot of growth left to come for Chipotle over the long term, but it's easy to see that this burrito may be overstuffed with optimism at the moment.

I think Chipotle's a great company. I love the food, as well as its focus on natural and organic ingredients. However, having noticed that many pricy, premium stocks eventually do present a bargain when some temporary factor goes amiss, I'd rather wait for a more reasonable price before thinking about gobbling up Chipotle shares.

For related Foolishness, see the following articles:


Read/Post Comments (0) | Recommend This Article (11)

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.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 539521, ~/Articles/ArticleHandler.aspx, 10/21/2014 8:11:27 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement