I Want to Have My Burrito and Eat It, Too

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On a recent road trip with my wife, I got a sudden craving for a chicken fajita burrito. Alas, I knew we were nowhere near a Chipotle Mexican Grill (NYSE: CMG) (NYSE: CMG-B).

What's a hungry driver to do? Sure, I had plenty of other options; we must have passed at least a dozen McDonald's (NYSE: MCD), and of course a Burger King (NYSE: BKC) here and a Wendy's (NYSE: WEN) there. There were also the crowded and rather suspect rest stops. ("Keep driving," my wife instructed.)

I needed my burrito! How many other hungry drivers out there needed their Chipotle fix, but either (ahem) settled for a Yum! Brands (NYSE: YUM) Taco Bell, or pressed on until they eventually scored their prize?

Burritos for everyone
My hunger-panged experience plainly illustrated that this purveyor of delicious burritos and tacos remains an exciting growth story. Yes, it already operates nearly 900 locations, but it has plenty of room to run here in North America, not to mention international expansion. This year alone, the company is on track to open 120 to 130 new locations. Furthermore, it's aiming to open its first restaurant in London next year. Best of all, Chipotle is financially secure enough to pay for all this expansion from their cash on hand, as well as cash from operations.

Obviously, the Chipotle concept is here to stay. With "Food with Integrity" as its core philosophy, the restaurant serves up high-quality and increasingly natural and organic food in a unique setting, helping to attract a loyal customer base and to build a strong, lasting brand.

It all adds up to a growth investor's dream, right? Right?

Hold the guacamole for a second...
I want to see more than growth. Sure, it's great for increasing sales (as Chipotle did in the second quarter, to the tune of 14.1%) but it can sometimes mask other problems -- in particular, same-store sales. As an investor in the rather volatile and cyclical restaurant industry, I'm looking for companies that are continuing to grow revenue, but which are also increasing sales at already open locations. Otherwise, you've got growth for growth's sake. And eventually, that will catch up with you – whether you're an investor or a restaurant operator.

In Chipotle's case, I want to have my burrito and eat it, too. This past quarter, the company reported a 1.7% increase in same-store sales. While that's pretty good in this economy, it came mostly on the backs of price increases. Even worse, Chipotle actually experienced a decrease in traffic. Yikes!

So when the company reports on Thursday, I'll be looking for top-line growth and positive same-store sales. Chipotle's leadership team, which includes a passionate founder/co-CEO and several industry veterans, is now battle-tested, having survived and indeed thrived during the recession. And we're now a year into this economic malaise, meaning year-over-year comps should get easier. But for Chipotle to justify its lofty stock price -- now at 30 times earnings -- it'll have to deliver earnings reports as tasty and satisfying as its burritos.