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Chipotle Stock Jumped When it Should Have Dropped

Chipotle (CMG) just jumped when it should have dropped. Same store sales growth  — a leading indicator for restaurant stock prices — slowed from to 4% last qtr, down from 10% a qtr earlier. And the company missed profit estimates by 2 cents after beating by 28 cents the qtr prior.

Still CMG jumped from $662 to $723 on the week — 9%. Here’s a look at CMG’s same store sales growth history:

  • 2013 Q4 9.3%
  • 2014 Q1 13.4%
  • 2014 Q2 17.3%
  • 2014 Q3 19.8%
  • 2014 Q4 16.1%
  • 2015 Q1 10.4%
  • 2012 Q2 4.3%

That’s a major deceleration, maybe investors were impressed with the 27% profit growth. I have no idea, but the stock’s too high right now.

One Year Chart

CMG_2015_Q327% profit growth is very good, but I’m concerned about the Estimates as CMG’s 2014 was sensational and now the company has to beat the high bar.

Wow the P/E of 42 compared to Estimates of +11% and +14% makes me feel the top is in with this stock (but I’m the one who sold it in the $200s, way too soon).

Fair Value

CMG_2015_Q3_FVI feel 35 times earnings is the right P/E ratio for this stock. To me CMG is overvalued by 17%.

Sharek’s Take

Chipotle is a great core holding for growth investors, but the valuation is once again extreme. If you look at the one-year chart the stock touched $600 earlier in the Summer and that was 35x earnings. Now the P/E is 42. Also, Annual Profit Estimates are around what they were 4QtrsAgo. I feel CMG is no longer a top-tier growth stock but obviously other investors think more highly of the stock. I feel CMG is at a near-term top.

View the Earnings Table here.
View the Profit History here.
View the Ten Year Chart here.

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