Chipotle Mexican Grill (NYSE:CMG) has been wildly successful over the past few years, growing to over 1,700 locations and achieving margins that few in the restaurant industry can match. A simple menu, quality ingredients, and fast service are the pillars supporting Chipotle's success, and the company's ability to increase its prices without a negative effect on store traffic is a testament to its popularity among consumers.

But a great company like Chipotle is only a great investment at the right price, and paying too much for the company's stock is likely to lead to lousy results. Chipotle currently trades at about 46 times the average analyst estimate for 2014 earnings, a number that requires extraordinary growth in order to justify. And while the company has posted impressive revenue growth during the past few quarters, guidance for 2015 points to a severe slowdown. The expectations baked into the stock price may be more than the company can ultimately deliver, and the stock could be worth far less than it trades for today.

How fast can Chipotle really grow?
There are two ways that Chipotle can grow its sales going forward: selling more per store, and increasing the store count. Chipotle currently operates about 1,700 stores, and it expects to open roughly 200 more in 2015, representing about 12% growth. Chipotle earns enough profit to be able to fund this expansion without having to turn to debt, so there's little risk that expanding too quickly will cause any serious problems.

Comparable-store sales growth, which is a measure of how fast sales are growing excluding the effect of new store openings, hasn't been very consistent for Chipotle over the past few years. However, starting in the second quarter of last year, the company managed to vastly improve comps, and a price increase which began to roll out during the second quarter of this year boosted sales even further.

Chipotle Sales

Source: Chipotle 

If we naively take 12% annual store growth and add it to the recent high-teens comparable-store sales growth, a P/E ratio near 50 doesn't really seem all that unreasonable. But the type of growth that Chipotle has achieved during the past few quarters is unlikely to be sustainable, and management has guided for just low-to-mid single-digit comparable-store sales growth in 2015.

This isn't all that surprising, since a price increase was a major factor behind the growth during the past two quarters, and next year is unlikely to have a price increase of its own. But this guidance suggests that gains in store traffic won't be nearly as impressive going forward compared to the past few quarters.

Even with 6% comparable-store sales growth, though, earnings could grow at a 20% annual rate, assuming that the company can maintain its high operating margins, which neared 20% during the most recent quarter. If this kind of growth continues for the next decade, the high P/E ratio of today may be justified.

This would require the store count to continue to expand at a 12% pace for 10 years, which would put the total store count at around 5,300 by the end of the 10-year period. This is beyond the 4,000 restaurants Chipotle estimated it could eventually operate in the U.S. when it IPO'd in 2006, so maintaining this level of growth would likely require significant international expansion.

So far, Chipotle has very few restaurants outside of the United States, and assuming that the company will have the same level of success abroad as it has in the U.S. requires a big leap of faith. Chipotle is testing new concepts as well, like ShopHouse Asian Kitchen, and while these could provide an additional way for the company to grow, it requires the assumption that the company can strike gold again with a second brand.

Another issue: Chipotle's business is based on the concept of using high-quality ingredients, and the availability of those ingredients may hinder the company's international expansion. Even today, Chipotle occasionally has issues sourcing ingredients, having to periodically resort to serving conventionally raised beef and chicken.

Maintaining mid-single digit comparable-store sales growth in the long term may also not be realistic. Simply assuming that the growth of the past will continue unabated into the future is unlikely to be a good idea, especially with plenty of fast-casual competition. Qdoba, a rival burrito chain owned by Jack in the Box, is getting more aggressive, with a recent decision to stop charging extra for gaucamole creating a distinct value proposition for those who typically splurge for the extra at Chipotle. Qdoba is smaller than Chipotle, with about 600 stores, but if rumors of a possible spinoff are true, Qdoba could be in a position to more aggressively go after Chipotle's market share.

There are a lot of assumptions that have to be made in order to justify Chipotle's current stock price, and with little presence abroad, comparable-store sales expected to slow, and competition heating up, a P/E ratio near 50 for a chain of burrito restaurants seems excessive. Chipotle can certainly grow earnings rapidly for a while, but I have my doubts about how sustainable this kind of earnings growth really is.

Foolish thoughts
Don't get me wrong; I like Chipotle. I eat there once every few weeks, and it's certainly preferable to traditional fast food. But it's also not as unique as some people seem to think. There are plenty of other fast-casual restaurants out there, including many with a similar focus on quality, and competition may end up eventually bringing Chipotle's sky-high operating margins back to earth. Everything has to go right for Chipotle for a long time for the current stock price to make sense, and that's not a bet I'm willing to make.

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.