Not Down Enough

Chipotle (CMG) just dropped after it reported earnings — the second drop in the past two qtrs. Last qtr I said “I see the stock dropping another $150 unless it raises prices soon” and since then the stock’s gone from $671 to $638. So it’s still not down enough.

What’s been fueling CMG’s stock (and profits) is its same store sales (SSS) growth. Here’s the SSS figures for the past 6 qtrs:

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

Management raised in April 2014 (2014 Q2), and that coincides with the jump in SSS from 9% to 13% and then 17%, but now we are lapping that qtr. Of Last Qtr’s 10% same store sales growth, 6% was attributed to higher menu prices. Of 2QtrsAgo’s 16% increase, 6% was attributed to price increases. Now management guided low-to-mid single digit SSS growth this qtr, followed by flat SSS growth the 2nd haf of the year. I think they are low-balling and will beat this, but still I think we can say goodbye to the teens SSS growth, perhaps for good. Unless management raises prices, which it’s considering.

Chipotle is having trouble with its pork supply, but this is being corrected, and is not a concern long-term. I used to own CMG for many years, and sold it I think in the $200s. Now my goal is to get back into CMG at a reasonable price.

One Year Chart

This little dip in the stock price isn’t much. Stock still has a lofty P/E of 37. CMG is always overvalued.

CMG was expected to put out 226% profit growth last qtr, and came through with 47% growth. NextQtr analysts expect 28% growth, followed by 12%, 15% and 18%.

Fair Value

Chipotle can optimistically grow profits 25% a quarter later in the year if it beats the street. A P/E of 30 is reasonable. Still, I have CMG’s Fair Value at $522, so the stock’s 18% overvalued.

Sharek’s Take

Chipotle has come down, but not nearly enough for me to get excited. I’ll continue to monitor the stock and if it does correct, I’ll be ready and willing to climb aboard.