Chipotle Mexican Grill (CMG)
From Cabot Wealth Advisory 12/14/15 Sign up for Cabot Wealth Advisory—it’s free!
Chipotle (CMG) has been one of the biggest winners of the decade; even after its recent troubles, the stock is up 1,470% since the market’s 2009 low.
But the stock has come under serious selling pressure in recent days.
Note in particular the heavy volume of selling.
So it’s worth asking, how serious are the company’s problems? Might the stock be a good buy here?
To recap, the troubles started with the firm’s third-quarter earnings report, released in mid-October. In short, the report revealed slowing growth, and investors reacting by gapping the stock down at the open.
November brought cases of E. coli to Chipotle diners in Washington and Oregon.
And December brought more than 100 cases of norovirus traced to a Boston Chipotle restaurant.
Now, personally, I’m not particularly concerned about the company’s food safety. I figure they’ll clean up the restaurants and institute stronger food safety procedures (reading the McDonalds operating manual would be a good place to start). So I’m going to keep on patronizing my local Chipotle for take-out.
But how do we evaluate CMG as an investment now?
Fundamentally, CMG is still a growth company, but it’s slowing. While earnings grew 36% in 2014, they may slow to 11% in 2015 and fall as low as 9% in 2016. And there’s no dividend payment to add stability.
Technically, the stock hit new price and RP peaks as recently as August, so it’s certainly not in the “mature” phase we see AAPL in. However, from a short-term momentum point of view, the stock is dead. Until we see consistent signs of strength, growth-oriented investors should look elsewhere.
And then we come to valuation. CMG currently has a P/E ratio of 34, which seems kind of high for a company expecting earning growth of 9%. But that’s down from a P/E peak of 73, so mightn’t it be attractive to some investors? Maybe.
Happily, the fact that CMG has a consistent record of revenue and earnings growth means it qualifies as one of Roy Ward’s “Top 275 Value Stocks.” (That’s a list that Roy’s subscribers see updated every month.)
And a key feature of the list, as I’ve mentioned many times, is Roy’s Maximum Buy Prices, which ensure that you never overpay for a stock. And the bad news about CMG is that the stock, even after its 25% haircut, is still not a bargain!
In fact, Roy’s Maximum Buy Price for CMG is 419.40—a full 26% below today’s price!
Now, that doesn’t mean the stock will fall to that level. But it does mean that CMG is by no means a good value at this point. So, as with AAPL, my best advice is to look elsewhere.
And while you’re looking, consider joining the well-informed readers of Roy’s Cabot Benjamin Graham Value Investor, so you can stay informed about where the real values are in market.
For more info, click here.
Chipotle Mexican Grill (CMG): The next McDonalds
By Michael Cintolo, Chief Analyst, Cabot Market Letter and Cabot Top Ten Trader
From Cabot Wealth Advisory 2/25/14 Sign up for Cabot Wealth Advisory—it's free.
Just because the market has been very strong doesn’t mean there aren’t any stocks that are currently setting up. You might think that stocks that haven’t raced to new highs are laggards, but I think it’s way too soon to say that, considering the market re-entered a new intermediate-term uptrend just two weeks ago. Maybe three weeks from now, if a stock hasn’t gotten off its knees, it would be a bad sign, but right here, it’s too soon to dish out labels.
One, in a pristine set-up that appeared in Cabot Market Letter most recently is Chipotle Mexican Grill (CMG), which is poised to become the next McDonalds (in fact, McDonalds owned Chipotle before it was spun-off in the mid-2000s). To be honest, CMG is a bit more well known than I prefer, and its huge valuation (53 times trailing earnings!) compared to its earnings growth (20% to 25%) isn’t ideal, either.
However, the more I study CMG, the more it reminds me of Coca-Cola and General Electric back in the mid-1990s—neither company was growing that fast, but institutional investors ran the stocks up for years (to huge valuations) as they discounted what was likely steady double-digit earnings growth for years to come. Eventually, after the 1998 mini-bear market, that game ended, but it was a big advance.
I think Chipotle has much more growth potential than either of those two behemoths. Yes, it has about 1,600 locations today, but that number could double in the years ahead, and the firm is just beginning to expand (at a very slow clip) a couple of new concepts—Pizzeria Locale, which can make a custom pizza in a matter of minutes and has a couple of locations in the Denver area, and ShopHouse, which is very similar to Chipotle but for Asian fare. There’s been one location in D.C. for a while, and it’s expanding to eight within a few months.
Of course, those new concepts won’t impact the bottom line for a couple of years at least, but it doesn’t take a genius to see that if either (or both) of these concepts succeed, Chipotle will have a whole new leg to its growth story.
Anyway, right now, the firm is doing well after a slowdown last year—sales growth is (very) gradually accelerating, up 13%, 18%, 18% and 21% in the past four quarters, while earnings were up 30% in the fourth quarter—the fastest rate of growth since mid-2012. And analysts see the bottom line up about 25% both this year and next.
Lastly, the stock itself peaked near 550 in November, futzed around for a couple of months, and then dove to 480 during the market correction. But it gapped up back to 550 after announcing fourth-quarter earnings, and has traded tightly during the past three weeks. If you’re game, I think it’s buyable here, with a stop near 525. Any powerful move above 565 or so would be highly bullish.
Cabot Market Letter features additional growth stocks like CMG with pristine set ups and big advancement potential in the months to come. To view additional stocks that I'm watching, consider taking a risk-free trial subscription. For details, click here.
By Brendan Coffey, Editor of Cabot Green Investor
From Cabot Wealth Advisory 3/15/10 Sign up for free Cabot Wealth Advisory e-newsletter
Last month, in the midst of what was a dreary and largely snow-free February outside of Boston, my wife and I decided to break the winter monotony one day by bringing our two kids, Lila, age two, and Phoebe, five months, to the mall.
But a problem with the trip to the mall was the food options. Nowadays, you generally have two options at a mall--food court fast food or upscale casual places that end up being too risky (and too quiet!) to risk spending 90 minutes in with a temperamental toddler and an unpredictable infant.
So we tried a recently opened location of Chipotle Mexican Grill (CMG). Chipotle is a chain of Tex-Mex "fast casual" restaurants that started in 1993 and grew under the guidance of McDonald's, which spun Chipotle off in an IPO four years ago.
Two things immediately struck me about the restaurant, it had none of the stale, sometimes rancid smell of old frying oil fast food joints often acquire, because there is very little deep-frying going on, and the workers seemed happy.
For our part, we both quite liked the food, the meat was tasty and the lettuce was crisp and it all seemed a fine value for around $7 for each of the adult meals.
While it was the first time I ate at a Chipotle, I admit I was already familiar with the company. It's one of the highest profile companies that are looking to offer humanely raised meat in their restaurants, along with growth hormone-free dairy products and organic beans. Chipotle calls it "Food with Integrity," which they define as sourcing from cattle, cows and pigs that are pastured, vegetarian fed and free of antibiotics and growth hormones.
And Chipotle is a heckuva stock. Since early January, shares have surged 23% from 90 to over 110, and are primed to rise further, having clearly and easily held technical support along the 50-day and 200-day moving averages in recent months. Charts indicate there may be some resistance around 130, but it looks like it will be mild.
From that point, there should only be a little selling pressure from people who bought around the all-time high of 150, touched right before the economic crisis hit in 2008. Mutual funds have added nicely to their already strong positions in Chipotle lately. That translates into excellent share support in rough markets, while a $100 million share buyback plan in 2010 will further boost the stock.
Beyond technical strength, I'm a believer that strong fundamentals beget strong technicals, and Chipotle supports that argument. The chain reported a sales increase of 19% in 2009 to $1.5 billion, including decent same-store sales gains of 2.2%. The company, with 986 locations right now, plans to open another 120 or so this year.
It's also looking to build on its menu through testing breakfast fare at its Dulles airport location, and a possible kids' menu. Management is still evaluating, but believes it sees signs the kids' menu is producing outsized gains in sales and check size.
Compare that to competitor Qdoba Mexican Grill, owned by Jack in the Box (JACK), which saw same store sales fall 1.7% in its most recent quarter on top of a 1.1% slip the prior year period. Cheap Mexican food competitor Taco Bell of Yum Brands (YUM), draws in the late night munchies crowd with its 99-cent Volcano Tacos, but pulls in $500,000 fewer sales per location annually than Chipotle.
I detailed Cabot Green Investor subscribers all about Chipotle in our March issue, out earlier this month. We usually cover alternative energy and technology stocks in Cabot Green Investor (and our other stock pick this month is a crucial player in the growing LED market whose shares are taking off--and no, it's not Cree, which was already in the Green portfolio and is up 23% for us this year).
But the world of Green also includes fascinating lifestyle growth plays and we occasionally leap into the exceptional names we're seeing in order to make profits (CGI subscribers are also enjoying an 11% gain in another Green-related food stock we added to the portfolio on February 26).
Contrary to what many experts predicted entering the most recent recession, Green lifestyle spending, especially food and drink, hasn't dropped in response to the poor economy--it has simply slowed it growth, and that's in sectors where overall sales have fallen. That strength has shown itself in share performance: A look at the subsector of Green food and beverage related stocks we track for Cabot Green Investor reveals that every stock in the subsector has outpaced the S&P over the past year.
I recently dug through all the polls and surveys I could find from 2009 and 2010. I estimate from those that about one in 10 consumers chooses to patronize a company (or chooses to avoid it) based on its environmental reputation. That's not a huge percentage, but it's enough to give some companies an edge--after all, when it came to a decision that day between McDonald's, Chik-Fil-A or Chipotle, the decision had essentially already been made for me and my wife. For the other 90%, there's the taste of the food, and Chipotle more than holds its own there.
No stock is buy-and-forget-about, but Chipotle presents a nice opportunity to make money right now and for the foreseeable future.
Editor's Note: To profit from more of the top Green stocks that Brendan is following in Cabot Green Investor, click here for information.
Analyst and Editor of Cabot Green Investor
Brendan Coffey is a member of the Cabot investment team and editor of Cabot Green Investor. A veteran financial journalist, Brendan has spent more than a decade writing about investing for publications including Barron's, Forbes, The Wall Street Journal and a number of private-client brokerage newsletters.
By Michael Cintolo, Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Report
From Cabot Wealth Advisory, 2/4/10. Sign up for free Cabot Wealth Advisory e-newsletter
Right now, I'm focused on getting back to basics ... looking for strong stocks with great sales and earnings growth, big profit margins and (very important!) a solid story that is likely to continue those earnings trends in the quarters to come. Moreover, I'm attracted to stocks that have been building launching pads for many weeks or months, as opposed to stocks that have motored higher for 10 months.
On that front, I'll highlight a stock I've been keen on for a while, yet the stock (and its group) just never got going last year. But now, it looks like the tide may be turning.
I'm talking about restaurant stocks, but specifically, "new idea" restaurant stocks that aren't already so big that they're destined to grow a measly 5% a year. One of my favorite ideas in the group, Chipotle Mexican Grill (CMG), has tons of expansion potential in the years ahead, which, combined with growth at restaurants already open, should drive earnings sharply higher.
Chipotle Mexican Grill is aiming to re-invent the fast-food business with its simple Mexican fare. Its hitch is fresh, quality ingredients as well as quick service--most of the firm's beef, chicken and pork is naturally raised (no hormones, etc.), and much of its vegetables are organic. More important, the food is good! Management is also top-notch (the firm was originally a subsidiary of McDonalds before being spun off in 2006), and should be able to guide the firm from its current 900-plus store count to a couple of thousand in the years ahead. Revenue growth has been humming along at a 15% clip, but earnings are expanding much, much faster (up 49% and 83% the past two quarters).
The stock has been building a base since the middle of last year but perked up in 2010 despite the soggy market. Also, the company reports earnings on February 11. Assuming the stock get through the earnings reports unscathed, my thought is that it has strong upside in the months ahead as money flows into the fastest-growing companies in this group.
Editor's Note: From the market's bottom in March 2003 to the low in March 2009, the S&P 500 lost 18% in total and the Nasdaq lost 3.5%. Cabot Market Letter, however, left them in the dust: Advancing a total of 94% during the past six years (nearly 12% per year). Cabot Market Letter has called every bull market since 1970. In fact, Timer Digest recently named Cabot Market Letter one of the Top Ten Timers for the last one, three, five and 10 years! Don't miss what our indicators have to say next! Click here for more information.
Vice President of Investments and Editor of Cabot Market Letter and Cabot Top Ten Weekly
A growth stock and market timing expert, Michael Cintolo is editor of Cabot Market Letter and Cabot Top Ten Weekly. Since joining Cabot in 1999, Mike has uncovered exceptional growth stocks and helped to create new tools and rules for buying and selling stocks. Perhaps most notable was his development of the proprietary trend-following market timing system, Cabot Tides that has helped Cabot place among the top handful of market-timing newsletters numerous times.
By J. Royden Ward, Analyst and Editor of Cabot Benjamin Graham Value Letter
From Cabot Wealth Advisory, 8/24/09 Sign up for free Cabot Wealth Advisory e-newsletter
Chipotle Mexican Grill (CMG) is a restaurant chain that serves healthy food and has a healthy balance sheet. I featured Chipotle in the latest issue of my Cabot Benjamin Graham Value Letter.
Chipotle is defined as a smoked and usually dried jalapeno chili used in Mexican or Mexican-inspired cuisine. Chipotle chilies are used to make various salsas. The company, Chipotle Mexican Grill, develops and operates 886 restaurants in 33 states.
CMG has become highly successful by offering fast service and high-quality Mexican food in a casual atmosphere. All dishes are prepared using fresh ingredients. The company emphasizes the use of raw ingredients that are raised without the use of animal byproducts, antibiotics or hormones, as well as produce that is grown using sustainable farming methods.
Same store sales increased 1.9% during the six months ended June 30, despite the current slump at other restaurants. Total sales increased 15% as a result of menu price increases and the opening of 50 new restaurants. Earnings per share jumped 49%, aided by the price increases and some cost cutting.
Chipotle will expand aggressively during the next several years, which will drive 20% or better sales and earnings growth during the next three to five years. The company plans to open about 125 new restaurants in 2009 after opening 136 in 2008. Chipotle opened its first restaurant in Canada in 2008 and will add many new locations there in the future.
Chipotle has a very strong balance sheet with lots of cash and no debt. The company pays no dividend. CMG shares sell at a reasonable 24.2 times next 12-month EPS. I highly recommend buying CMG at the current price.
Editor's Note: You can read more about Chipotle and get continuing coverage of the stock in Cabot Benjamin Graham Value Letter. There you'll not only find buy and sell advice for CMG, you'll get dozens of other excellent value stock recommendations from J. Royden Ward each and every month. Roy applies the strategy of the father of value investing, Benjamin Graham, to find the market's best undervalued stocks. This year he's already uncovered several stocks that were sold for double-digit profits! Don't miss out on his next recommendations...click here now to get started today!
J. Royden Ward
Editor of Cabot Benjamin Graham Value Letter
A lifelong investment professional, J. Royden Ward applies his 40 years of investment research, portfolio management, writing and publishing experience to his role as analyst and editor of Cabot Benjamin Graham Value Letter, which is directed to long-term investors seeking a guide to profitable value investing based on the time-tested systems originally developed by Benjamin Graham, the Father of Value Investing. A second-generation disciple of Benjamin Graham, Roy in 1969 pioneered the development of a computerized model that applied the formulas developed by Graham using a unique ranking system. Today, Roy applies his system to two models in the Value Letter.
By Paul Goodwin, Analyst and Editor of Cabot China & Emerging Market Report
From Cabot Wealth Advisory, 4/24/09 Sign up for free Cabot Wealth Advisory e-newsletter
My stock pick today is based on the advice of Peter Lynch, the investing legend who advised people to buy stocks of companies whose products they knew and used. Lynch followed his wife's approval of L'Eggs panty hose to a big profit in the company and used his own preference for Gillette razors to guide him to another big winner.
I've recently eaten at a Chipotle Mexican Grill (CMG), and I'd have to say that my tummy approves of this stock pick.
Chipotle is a chain of over 800 Mexican-themed restaurants that has turned a simple menu of tacos, burritos, salads and burrito bowls into a successful business plan. The emphasis is on high-quality, fresh, organic ingredients prepared on-site and served up with style.
The company was originally a subsidiary of McDonald's, but was spun off in 2006. The stock had a huge run in 2007, soaring from 52 to 155. But when the correction came, it was a whopper! The stock plummeted to 37 in November 2008 and launched a failed bounce in December, then settled down to building a new base.
The breakout came in March and has boosted CMG from 48 to an intraday move over 90 before a little profit-taking pulled it back to near 80.
Restaurant and retail stocks are the flavors of the week these days, and CMG has been enjoying a great run, fueled by a 50% gain in Q1 earnings and a 7.2% after-tax profit margin that matches the company's historical best.
I discovered CMG by using my screen for stocks that have gone up for five or more weeks in a row. There's gold in them thar burritos.
Editor's Note: Every Monday our in-house staff including Paul Goodwin, lead by Editor Michael Cintolo and aided by software program OptiMo, combs through stock charts to find the 10 strong charts that are most likely to keep on running higher in the weeks and months ahead. The result is an active investor's guide to the best moneymaking possibilities TODAY. In past years, Cabot Top Ten Weekly has been an early recommender of Apple, Baidu, DryShips, eResearch, First Solar, Gamestop, Hansen Natural, Intuitive Surgical, Royal Gold, Titanium Metals and hundreds of other big winners. In 2009, it's already identified the stocks that are attempting to lead the market higher today. If you want to own the best-performing stocks of 2009, I urge you to give it a try. To get started with a no-risk trial subscription, simply click here: Cabot Top Ten Weekly
Emerging Markets Specialist, Analyst and Editor of Cabot China & Emerging Markets Report
A researcher and writer for over 30 years, Paul Goodwin has been a member of the Cabot investment team and editor of Cabot China & Emerging Markets Report since 2005. Under Paul’s stewardship, Hulbert Financial Digest rated Cabot China & Emerging Markets Report the number-one-rated newsletter of 2006 with a 78.6% gain for the year, the number-one-rated newsletter of 2007 with a 74.1% return, and the top-performing investment adivsory for five years with a 17.9% annual return.
|Chipotle Mexican Grill (CMG)
1401 Wynkoop Street, Suite 500
Denver, Colorado 80202 U.S.A.
|Index Membership: N/A
Full Time Employees: 45,340
- 12/14/15 Is Chipotle (CMG) a Bargain Here?
- 2/25/14 Chipotle Mexican Grill (CMG): The next McDonalds
- 3/15/10 Chipotle Mexican Grill (CMG): Strong Fundamentals Begetting Strong Technicals
2/4/10 Chipotle Mexican Grill (CMG): Tons of Expansion Potential
8/24/09 Chipotle Mexican Grill (CMG): Undervalued, with Lots of Cash and No Debt
- 4/24/09 Chipotle Mexican Grill (CMG): Buy Products You Know and Like