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The Hottest Pepper

Stock (Symbol) Stock Price

Chipotle (CMG)

$410

Data is as of Expected to Report Sector

April 25, 2012

July 16

Retail & Restaurant

Sharek’s Take
David SharekChipotle is the hottest pepper around. The stock’s been on a tear since last December as the company fundamentals have surged. The problem now is the stock is priced to perfection.
 
The real reason CMG is on a tear is same store sales are rising at a double-digit rate.
That means more sales per location, and a bigger chunk of sales turn into profits. Food costs are a concern, but CMG rose prices 5% in March which cancelled out a 6-7% increase in food costs.
One-Year Chart
CMG’s P/E is really high — about as high as it can get. I’ve been taking profits in the stock for a while and will continue to do so.
 
I can’t assume the stock will fall though, because profits are humming along. Here’s the stock in a nutshell: The stock is priced to perfection, but the company is executing perfectly.
Earnings Table
Profits jumped 35% last quarter on a 26% increase in sales. Same-store sales growth was 13% LastQtr, 11% 2QtrsAgo, 11% 3QtrsAgo, 10% 4QtrsAgo.
 
CMG beat by a nickel, which helped profit growth accelerate to the highest rate in a year.
  
Annual Profit Estimates continue to climb, but not enough to justify the stock’s P/E increase from 43 last quarter to 46 this quarter. 
 
Quarterly estimates look great. This company could grow by 40% the next four quarters.
Fair Value
I think in the long-run this stock is worth 35 times earnings. A strong market correction could whipsaw CMG down.
Ten-Year Chart
This is a parabolic move. There’s really no support until $350. Even that isn’t support level isn’t strong.
 
Profits are expected to climb 30% this year, and if CMG keeps increasing estimates we could see 40% growth.
Power Ranking Bottom Line
Growth Portfolio

17 of 18

What to do with this stock? Profits could rise 40% this year yet the P/E is 46. This is the hottest pepper — blazing hot yet dangerous.
 
I’m ranking this stock on its potential for the next 1-2 years, not what it’s doing now. I think CMG could go through a basing period where it goes back-and-forth and digests prior gains. CMG is ranked 17th in the 18 stock Growth Portfolio Power Rankings. The pepper is not in the Aggressive Growth Portfolio.
Aggressive Growth Portfolio

N/A

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