A look at los numeros
Growth for Chipotle means selling more burritos, by increasing same-store sales and adding stores. In the recent conference call, management projected same-store sales to increase in the "low single digits." For my analysis, I'm going to call that 3%. Management also plans to add 135 to 145 stores in 2011 -- let's say 140.
Over the last four quarters, the company has brought approximately 10% of sales to the bottom line. The following table extends these assumptions over the next two years.
|Metric||2010 (Actual)||2011 (Projected)||2012 (Projected)|
|Sales per store||$1.69 million||$1.75 million||$1.8 million|
|Total Sales||$1.83 billion||$2.14 billion||$2.45 billion|
|Profit||$179 million||$213.6 million, or $6.89 per share||$245.1 million, or $7.91 per share|
So what value should we place on such performance? In the restaurant industry, the average forward P/E hovers around 20. But Chipotle likely has greater growth potential than larger restaurant chains like former parent McDonald's
But how much higher? Peter Lynch famously said, "The P/E ratio of any company that's fairly priced will equal its growth rate." Lynch was referring to annual growth rate. Analysts predict about 20% annual five-year growth for Chipotle – a little bit higher than what we've got here. But let's run with that number.
Here's the calculation of stock value, assuming a P/E multiple equal to the analysts' projected growth rate, with a few higher multiples for comparison:
|2011 earnings of $6.89||$138||$207||$276|
|2012 earnings of $7.91||$158||$237||$316|
The bottom line
With a recent price of $281, it would appear that Chipotle has neared its peak. In light of the generous P/E ratios that I have applied to future earnings, sky-high investor expectations may have left the company overvalued.
If you're looking for growth in restaurants without the gaudy price, check out Famous Dave's of America
Fool contributor Adam J. Crawford does not own shares in any company mentioned in this article. Chipotle is a Motley Fool Rule Breakers selection. Tim Hortons is a Motley Fool Global Gains recommendation. Chipotle is a Motley Fool Hidden Gems selection. McDonald's is a Motley Fool Income Investor pick. The Fool owns shares of Chipotle. 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.