Considering Chipotle Mexican Grill (NYSE: CMG) (NYSE: CMG-B) as an investment leaves many investors questioning how much the restaurant's burritos are really worth. It's priced for perfection, trading at a whopping 42 times forward earnings per share. That's calling for a heck of a lot of growth! And after the sharp slide the stock has taken over the last month, falling 23%, isn't it clear that reality is setting in on the best retail stock of 2007?

Waaaait a second ... what am I saying? I'm supposed to present the bull side of this week's Duel.

Of course, I was making simply my first point: It would be all too easy to declare this popular Mexican eatery "too rich for my blood" and look elsewhere for tastier bargains. After all, the recent pummeling casual diners have taken likely presents some genuinely undervalued opportunities. In a year when former highfliers Buffalo Wild Wings (Nasdaq: BWLD), Panera Bread (Nasdaq: PNRA), and Starbucks (Nasdaq: SBUX) plummeted 15%, 35%, and 42%, respectively, fun Spanish phrases like "caliente" and "en fuego" describe both Chipotle's tomatillo-red chili salsa and the stock's 153% ascent during 2007.

High growth doesn't come at 20 times earnings
What we have here, ladies and gentlemen of the jury, is nothing more than an excellently managed company firing on all cylinders. Do you really expect to pick up these shares at 20 or even 30 times earnings per share? It's not going to get that cheap unless something goes wrong, and we all know it. Granted, I'm a value investor to a fault, so I sympathize with the aversion to these high-growth stocks trading at such rich premiums. And, yes, I also sympathize with regret caused by watching what was certain to be an overvalued stock fly higher into the stratosphere.

See, as long as a company like Chipotle continues on its current path, the stock will churn right along with it -- aside from the mild correction that I believe these spicy shares are currently experiencing. It's only when such companies begin to falter that investors start to run for the exits. We've seen with Starbucks what happens when investors finally panic over a high-flying growth story once the growth story begins to slow. So, isn't Chipotle destined to eventually disappoint investors in a similar way?  

Of course it will, eventually. All growth stories have an end. But if I were to take a Buffett-esque buy-and-own-forever shot at one fast-growing casual diner, it would be one that was groomed for success by arguably the most successful restaurant ever: Did somebody say McDonald's (NYSE: MCD)?

Some numbers to chew on
If you're unfamiliar with Chipotle's story, the chain was once owned by the omnipresent burger joint, with two of the company's five executive managers coming from the Golden Arches. This incredibly efficient fast-food restaurant boasts a net margin of 6.3%, well above rivals Wendy's (NYSE: WEN), Steak 'n' Shake (NYSE: SNS) and Red Robin (Nasdaq: RRGB).




Trailing 12  Months






Operating Cash Flow*





Capital Expenditures*





*In millions. Source: Capital IQ.

Taking a look at Chipotle's past return on invested capital (ROIC), operating cash flow, and capital expenditures reveals a lean, mean, burrito-making machine For comparison's sake, this little chain's ROIC is approaching levels of companies that have invested and grown successfully in the past, such as McDonald's and Buffalo Wild Wings. Additionally, cash flow from operations are strengthening from established restaurants, and the company is just now coming into its own as it is beginning to produce positive free cash flow, which can be used to fully fund growth without issuing new debt or additional equity.

Yes, you do have to pony up a bit for these shares, but I don't think you'd find an investor who bought McDonald's at an "overpriced" level in the 1970s or '80s complaining today.

Don't forget to read the rest of the Duel and then vote on the winner.

Chipotle is a Rule Breakers recommendation and Chipotle B shares are a Motley Fool Hidden Gems recommendation.

Fool contributor Jason Ramage owns shares of McDonald's, Starbucks, and Buffalo Wild Wings. The Motley Fool owns shares of Buffalo Wild Wings. Jason's planning a short road trip to the nearest Chipotle this weekend to try out that red-chili salsa. If you think the menu is fun to read, check out The Fool's disclosure policy.