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Chipotle Mexican Grill, Inc. Message Board

  • xgrk88a xgrk88a Apr 20, 2011 11:27 PM Flag

    discounted cash flow or PEG valuation or 20 year valuation.

    About 95% of CMG's stock is owned by institutions and insiders. If you include "buy and hold" investors like me, there are very few shares actually available to buy. Hence the share price keeps going up. Actually, it is mainly the shorts that are selling and creating additional shares out there. But eventually, the shorts get hurt (especially the last one out as shorts squeeze the stock price higher). In the meantime, the other 99% of stockholders just sit and watch the shares go up as it meets or beats expectations each quarter. On top of this, as the company generates excess cash, it will probably buy back shares and shrink the float of shares. All this makes it very hard or new big buyers of shares to get in. The addition of this stock to the S&P 500 should also shrink the share base slightly since this is historically the case (although it could move much higher or lower depending on the timing of various funds moving in and out of the shares).

    For me to sell, i would have to see the stock over-valued, which I don't right now.

    Based on a discounted cash flow with the assumption of 15-20% growth rate for the next 20 years (which is a very realistic number), and a discount rate of 11%, which is the return I like to see, the value of CMG is $350-450. And that is with the assumption that Shop House fails, and knowing the owner and the effort her has put into it, it has a good chance of success.

    Using the PEG method of valuing the shares, I believe this could stay at a PEG of 2-2.5 for a good decade. And if the stock continues to grow at 15-20% (excluding Shop House), we'll see a PE of 40 for the forseeable future. That means this stock should continue to grow at 15-20% per year long term (excluding Shop House). Obviously, there could be hick-ups like rising food prices, but in the long run everything inflates and the increased price will be passed along to the consumer.

    So for now, I wouldn't sell unless I saw the stock rocket up past $400. Do I think it is worth that now? No. But I buy and hold for the long term, and wouldn't sell unless it hit a PEG over 3 (which surprisingly Cheesecake Factory has hit many times in the past).

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    • People can only eat so much food. Mexican food is sold everywhere. I think the growth will be in other ethnic foods like Indian.The reality is existing store sales will slide as other new products are offered by others

    • You think 20 % growth over 20 years is reasonable?

      If that is applied to sales, sales will have to rise close to 80 billion dollars per year.

      What do you think this is? United States of Pedros?

      No, don't answer that.

      • 1 Reply to rad_iant
      • HAHA good post. Anyway, I love Chipotle, but in small doses. I know people that LOVE Chipotle, but they are usually on a strict budget or LOVE it for 6 months and never go back because they get burned out.

        Fast food is all about fixed asset maximization. McDs can do breakfast lunch dinner and everything in between. That means you can have two McD's within 1000 ft of each other depending on traffic patterns and density -- or easily 3-4 within a square mile. You can never have that type of density with Chipotle. It relies on bringing in people from farther away to drive more people through the fixed asset base.

        In some parts of the country, Chipotle has real competitors as well. There may be a great burrito place established in an area already. So far, what I have I found is that Chipotle has been very very smart where they open a restaurant -- to get to 8,000, or even to double to 2,000+ they would have to start taking less desirable locations.

        I've seen the financials of dozens of fast food franchises -- $2 million means you have a pretty good location. I don't think you can do that 4,000 times in the U.S. with this concept. That still leaves you a foreign market to break into.

    • No one cares about the past. The question is whether Apple can double earnings next year and the year after that, and investors simply don't see that happening, and that's why AAPL hasn't been moving despite putting up incredible numbers quarter after quarter. On the other hand, it's quite believable that CMG's earnings will grow at high rates for years to come, so the stock gets chased.

    • Folks, store count growth is a powerful concept. It's like compounding interest in a way. So chains like Chipotle has years of growth ahead (unless its burritos become unpopular for some reason), and that's why its stock price will keep going up for many years, and that's why institutional investors won't be selling this stock anytime soon. Obviously it'll have down days/weeks and overall market conditions will have a big effect on its performance, but long-term, it's one of the stocks to hold in a growth-oriented portfolio.

      For comparison, as the number of Mcdonald's restaurants grew from 1000 to 10000 over 20 years or so, its stock price increased over 20 times. Of course, McDonald's was definitely a more spectacular growth story than Chipotle, but Chipotle still have lots and lots of store count growth ahead.

    • That's funny Billy. All the sit down restaurants in America will now close for breakfast due to your silly prognosis. By the way, is the PPS moving up or down????

    • People only go to breakfast stops when there is a drive thru. You strike out again.

    • Billy, it's funny how you avoid using any math and just make an unsubstantiated claim that the store count will never exceed 1500. But thanks for pointing out that a breakfast menu could be a monster move for CMG management!!!

    • 88, I think crazydad has embarrassed himself enough. These shorts won't attempt any math for you because their arguement will crumble. Thanks for the well reasoned post on CMG valuation.

    • So your only argument is that a forward PEG of 2 is too high?

      The S&P 500 is at a forward PEG of 1.6. For a company like Chipotle, a PEG of 2-2.5 isn't an unreasonable valuation.

      I am looking for a reason to sell. I bought in at $50, and have watched the stock rocket up. But I just can't find a reason to sell based on the fundamentals.

      And if you read what I wrote, I have clearly said that I don't know what the stock will do in the short term. A flood of shorts could add shares to the float. Leaving the mid-cap, and entering the S&P 500 could swing the stock price around. But in the long term, it is arguably not over-valued.

      If anybody has any fundamental reason why this stock won't grow at 15-20% a year, please make a case.

    • "Anyway, I was hoping someone would have a fundamental flaw with my valuation, but nobody has any comeback that is convincing."

      A PEG of 2 is just one of your flaws. The other is your intention here on this board.

      Can we say yet that folks are selling? I think we can. And when this day is over, you are going to see a massive spike in volume on the chart...beginning at $290...an all time high. The chart will be obvious to even the most rank amateur chartist. The run is over.

      Now...I have generously given you several replies, and I have answered your questions, so this might be a good time for you to go find something else to do, like go for a walk, brush the dog, do the dishes for mom, get out of the basement for a bit.

      The Chipotle gig is up. And even though the SEC PROBABLY won't do anything about the massive Ponzi mark up scheme that has gone on here, it would seem that at least ICE will do its job regarding this supposed "food with integrity" company.

      Run along now.

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CMG
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