Cipotle (CMG) announced outstanding quarterly profits last week, causing the stock to break out and soar on the news.
Last quarter Chipotle beat the $3.05 analyst profit estimate by a whopping 42 cents, coming through with 24% profit growth year-over-year. This was a surprise because CMG missed estimates by 21 cents last quarter. What’s even better is quarterly estimates just got jacked up on the heals of news Chipotle will be raising menu prices. This is what profit growth is expected to be the next four quarters: 42%, 47%, 44%, 32%. Those numbers amaze me. They also amaze other investors, who pushed CMG from $590 to $660 the day after the company reported.
Customers continue to make lines for Chipotle burritos, as same-store-sales were an amazing 17% last quarter. 2QtrsAgo same-store-sales were 13%, and that figure should have told me to buy in when the stock was around $500. The tex-mex restaurant chain is expected to open 180 to 194 restaurants this year, and has 1681 right now. High same-store-sales increases, menu price increases, and an increasing store count are all helping push profits higher.
My first thought was I needed to get back into CMG, which I sold a while ago because I felt it was too high (I was dead wrong).
But now that I look at the numbers, I still feel the stock is too high, even though the fundamentals look outstanding.
One Year Chart
Last quarter I wrote CMG stock is down from $600 to $500 but still carries a 40 P/E. Well now the stock is $675 and carries a 49 P/E. Note the the +40% profit growth quarters coming up in Estimates.
2014 profit estimates increased from $12.52 to $13.62. That’s a good increase, but this figure was $12.98 three quarters ago before coming down. For 49 times earnings I want to see three-quarter increases look something like $10 to $13.
Fair Value
Last quarter I felt CMG was worth 30 times earnings. The stellar results make the stock now worth 37 times earnings to me. I can’t get to the point of buying in at 49 times earnings when sales growth is expected to be 26% this year.
Sharek’s Take
Chipotle is 
clicking on all cylinders right now but the problem is everyone knows this and has priced the stock past 2015’s Fair Value. I feel CMG will continue to sky higher, but a company growing sales at 26% is dangerous to buy at 49 times earnings. Someday CMG’s P/E will come down into the 20s, and that’s a long way down from here.
View the Ten Year Chart here.
