Christmas is almost here, and if I could have just one stock in my stocking, I'd choose none other than Chipotle Mexican Grill (NYSE:CMG). Here are three reasons why.
There is no denying that Chipotle has been on an incredible run in recent years, driven by the profound success of its business.
Consider for a moment in the third quarter the company revealed through the first nine months of 2014, its revenue is up a remarkable 28% over last year's levels -- a difference of nearly $675 million -- and its same store sales are also up an impressive 17% year over year.
Chipotle noted the reason behind this growth in same store sales "was primarily driven by increased traffic and to a lesser extent from an increase in our average check."
In other words, demand was increasing both in the number of customers and the size of their orders.
But not only was revenue up, but so too was its profitability, with its restaurants' operating margin growing from 26.9% to 27.4%. And while an expansion of 0.5% doesn't sound like much, it meant an additional $14.5 million in income.
Thanks to this impressive improvement in its operations across the board, its earnings per share have risen 30% to $10.29 through the first nine months of the year. And if all that wasn't enough, its cash generated from activities rose more than 40% over last year's levels to stand at $550 million.
All of this is to say, Chipotle's performance in 2014 has been truly remarkable.
It isn't simply the past success of Chipotle that makes it so compelling, but also what the future may hold.
At the end of September, Chipotle had 1,724 locations, 132 of which were opened in 2014. In total the company expects between 180-195 new restaurant openings, so for the sake of ease, let's say by the end of the year there will be 1,775 Chipotles in total. Management expects its restaurant count could grow to 3,000 meaning more than 1,200 more locations could be on the way.
And not only will its restaurant count continue to grow, but there is the seemingly endless possibility of the ShopHouse Southeast Asian Kitchen restaurants -- which serve "fast-casual, Asian inspired cuisine" -- of which there were only eight at the end of September.
Throw in the reality that its average restaurant sales are up 12.3% through the first nine months of the year to nearly $2.5 million, and all signs indicate the torrid growth of Chipotle has no sign of slowing down anytime soon.
So having said all that, you may be asking yourself, Patrick, why don't you just go out and buy Chipotle stock yourself instead of waiting until Christmas? The reason is -- and why I'd like it as a gift instead of paying for it myself -- Chipotle's stock is expensive.
It currently trades at a lofty trailing 12 months price-to-earnings ratio of 50, which is roughly 2.75 times greater than the 18.7 ratio commanded by the S&P 500.
Observers will be quick to point out that the business prospects previously outlined warrant the premium valuation. In addition, the company has essentially always traded at a premium relative to the market, and its stock is up a staggering 1360% since its IPO, so one could argue there is no cause for concern.
And I too, am well aware of this reality.
But I cannot help to continually consider Warren Buffett's wisdom, "A business with terrific economics can be a bad investment if the price paid is excessive," whenever Chipotle comes to mind. And its lofty valuation causes a good amount of hesitation.
Put simply, it would be nicer to receive Chipotle stock as a gift, because then its price would be of no concern. However, the fact remains, even if I don't get it for Christmas, I would probably do well to go out and buy it myself.
Patrick Morris 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.
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