Is Chipotle Mexican Grill Too Expensive To Buy?November 6 | Posted by Kevin Monaghan | Top Story
Personally, I’m a big fan of the restaurant and currently own stock in Chipotle (CMG). However, we’ve sold about 80% of our holdings in the fast growing restaurant recently at Elite Inside Trader. About two months ago, we put a “reduce” rating on the stock citing an environment where growth stocks can be punished for even a slight miss in earnings. Look no further than to fellow outperformer Netflix (NFLX) which saw its stock price fall about 70% when it disappointed. Since we’ve more than doubled our money on our Chipotle investment, it makes sense to take some profits at the current levels.
The business itself is wonderful. The reason we bought the stock in the first place is that we liked the simple, profitable, trendy, expandable, and priced-right-for-the-consumer business model. The stock has performed very well for us, but we’re starting to ask if there are better opportunities elsewhere given Chipotle’s soaring stock price.
So far it’s just our hunch, but our opinion is that the major money has already been made in this stock. The stock is still expected to grow 20% for the next 5 years and most of that is reflected in the current price.
Chipotle still has room to expand internationally, which we like, but we don’t expect it to be as easy for the company as it was in the US. On that note, success in the US is sure to breed copy cats. Baja Fresh, Poquito Mas, and many others are jumping on the burrito/more natural food band wagon. Chipotle had a great head start with the help of McDonald’s (MCD), who had a majority interest in Chipotle a while back, in that they were able to expand quickly with support from one of the most successful chains on the planet. As competitors catch up, and the “fresher” fast food restaurants gain more popularity in general, we would expect Chipotle may have a tougher time growing and keeping up with the stock’s future valuation expectations.
As an alternative in the restaurant business to Chipotle we’ve had our eye on Panera Bread (PNRA). We believe Panera Bread is trading at a more reasonable valuation, offers a more diverse product range, and has more room to boost same store sales with different products and more offerings.
While we’ll still look forward to our burrito from Chipotle, we’re digesting whether these shares have run their course in our portfolio.
Disclosure: Author, Kevin D. Monaghan, Senior Partner at Elite Investment Group, is currently long CMG.