Why Chipotle Mexican Grill Inc. Stock Has Skyrocketed 27% in 2014

Source: Chipotle Mexican Grill.

Many high-growth stocks have come under pressure lately, but don't tell that to Chipotle Mexican Grill (CMG 0.53%). Even during a period in which most restaurant stocks swooned, the burrito giant has sustained its impressive growth trajectory, and its stock has scored strong performance so far in 2014. Even as the fast-casual space evolves, Chipotle continues to make progress in catering to new audiences while keeping tried and true loyal customers happy. But can Chipotle grow fast enough to satisfy hungry investors? Let's look at Chipotle Mexican Grill and its recent success more closely and try to figure out whether shareholders can expect more of the same in the future.

Stats on Chipotle Mexican Grill

Source: Yahoo! Finance.

How has Chipotle Mexican Grill continued to grow so fast?
Chipotle's explosive share-price moves have come from its persistence in generating amazing growth rates in its restaurant business. Even as some investors braced themselves for a possible slowdown, Chipotle's results for its most recent quarter showed the tenacity with which the company has dealt with changing economic conditions. Comparable-store sales growth of more than 17% came from higher traffic even as Chipotle raised prices in an effort to keep up with rising costs of key food ingredients. Earnings per share climbed 24% on 29% higher overall sales, and even some higher overhead expenses weren't enough to keep net income in check.

Chipotle has done especially well in growing on all fronts. Store expansion has played an important role, with store counts having risen 12% over the past year. At the same time, though, Chipotle's impressive comps show that customers become even more loyal over time to the brand, and the increased popularity of the restaurant's food among millennials and other younger customers bodes well for Chipotle's long-term prospects.

Source: Chipotle Mexican Grill.

In addition, Chipotle keeps things as simple as possible, and its strategy rewards investors by keeping costs down and margins up. At Chipotle, you won't see the extensive menus that Chuy's (CHUY -0.69%) and other burrito-selling restaurants have, but Chipotle's limited selections allow it to focus on its core competency and satisfy customers in the most efficient way possible.

Is Chipotle Mexican Grill due for a fall?
The biggest challenge that Chipotle investors face is deciding whether the stock is reasonably priced. At 60 times trailing earnings, Chipotle doesn't look cheap by any standards. Yet even as the company has gotten bigger, Chipotle's growth has shown few signs of slowing, and if current growth rates continue, they'll eventually justify the stock's current price.

Source: Chipotle Mexican Grill.

In addition, competitors are falling over themselves trying to mimic Chipotle's business model in order to score the same success. Burrito rival Qdoba has been a big contributor to the success of shares of parent company Jack in the Box (JACK -0.23%), which has more than doubled over the past two years, and even though Qdoba's comps are much weaker than Chipotle's, Qdoba has made a massive effort to restructure its operations and capture some of the same efficiencies that have helped Chipotle thrive. Even if Qdoba and other peers never reach the same levels of profitability and popularity as Chipotle, they nevertheless could capture potential sales that would have gone to Chipotle.

Finally, at some point, Chipotle simply won't be able to grow at the same pace as it has in the past. With revenue of roughly $4 billion and a market cap of $21 billion, Chipotle won't run out of room to keep moving higher anytime soon. But as it keeps growing, the pace of Chipotle's expansion will slow by necessity, and that should push growth rates down and multiples will fall with them.

What Chipotle Mexican Grill investors should know
For now, though, Chipotle Mexican Grill continues to give both its customers and its shareholders exactly what they want to see. As long as the restaurant chain can sustain its popularity, Chipotle should continue pressing higher and keep investors coming back for seconds.