The last time this stock dropped, the p/e peaked at 57. The 40% drop occurred immediately thereafter The company is bigger now, so a 56 p/e seems very stretched. Bigger size almost always means slower growth.
Plus, look what happened last time they decided to raise prices. Same store sales dropped from 10-12% to 1-3% within a few quarters. No matter what CMG says, the facts show that their price increases have a big negative impact on traffic. For those who have been watching, do you remember in late 2012/early 2013 when management couldn't explain the sudden drop in SSS, when other restaurants were growing SSS? The answer is simple. They raised prices 4% a few quarters earlier, and people started walking.
If you are looking to buy, wait till this drops a good 20% or more. Be patient - it will happen - but we don't know exactly when.
I understand the gold, but don't get your comment to hold physical cash. If we ever reach a point where bank deposits are not respected, physical cash will surely not be respected either. If the system collapses, dollars in any form are worthless. Seems to me you are just trying to encourage a bank run, which could never be that serious in this day and age. The Fed is there to print whatever money is needed to ensure liquidity on an hour's notice.
In my opinion, an interest bearing FDIC insured account is better than physical cash right now.
I agree it's not wise to hold stocks now. You could wake up one day and be down 20% before you have a chance to hit the sell button. Plus, anybody willing to risk their money at this level is never going to sell once they lose 3%. They'll be doubling down, buying the dips all the way down, trying to get that 3% back.
The only thing I can stomach is a breakfast sandwich. The lunch and dinner menu is pure #$%$. I'm serious in saying I would not eat it for free. In fact, they'd have to pay me $40, and I would have to be hungrier than heck.
Problem is, the meat is obviously below grade. Looks and tastes like salty cardboard. The bread is ridiculously tasteless, like eating sponge. The fries are just greasy garbage that will kill you early.
If MCD doesn't do something to increase the quality of its offerings fast, it will die a slow death over the next 5 years as the fast casual sector takes its market share. Right now, Chipotle offers a faster, cheaper and much better quality food experience.
Also, the MCD restaurant is designed for kids. I'd be embarrassed to enter one as an adult.
There are plenty of reasons not to like CMG stock, but people talking about CMG having high menu prices are off base. Go to Wendy's or McDonalds and see what it costs to fill your belly. A hamburger meal at Wendy's costs about $8-$9. A burrito and drink at CMG cost about the same. The burrito is actually more filling and better food quality. That's why CMG traffic is growing - plain and simple. They haven't raised prices in a long time, and they now offer clearly superior value. I think this might change as soon as they implement the price bump this year and competitors revamp their plans. Just got a coupon book from McDonalds in the mail yesterday with a lot of two for one offerings. I threw away the lunch/dinner offerings because they couldn't pay me to eat it. I did keep the breakfast coupons because I'll use them. McDonalds is obviously responding by attacking the market on price. That's the first time I ever recall getting coupons for McDonalds in the mail.
I don't think Japan is worth relying on. They have a culture of saving. The US has a culture of spending. Completely different mindsets with very different economic consequences.
GDP growth is slowing, but so is productive capacity. If demand picks up a tad, there could be inflation because the work force has shrunk a ton over the last five years. And it's still shrinking. There are lots of quiet layoffs and unannounced workforce reductions happening. Much of that decline is permanent in my opinion.
Plus, the Fed is starting to pull out. Once the Fed changes its direction, it has a history of sticking with it. They don't start and stop. They've almost reached their unemployment goal already.
Finally, with the low interest rates, the investor class bid up stocks and real estate. Now that those assets classes have reached their speculative peaks, where else can they put their new money? Some of this will go to increased spending and business investment. After all, that was the goal of the Fed all along. Investor will spend if they think there are no productive uses for their extra money.
Options do have an impact here. Look at the cash flow statement. Over the past two years they generated $950M operating cash flow, but then spent $350M of that on buyback activity related to option exercises. Management takes over 1/3 of cash flow off the top.
By the way, management is keenly aware of this. They are fighting like mad to maintain traffic growth per store, because they know that's what's holding it all together. Adding the sofritas, adding catering, adding mobile ordering, avoiding menu price increases - these are all desperate attempts to keep the traffic growth from hitting the wall. Problem is, they have only so many of these tricks up their sleeve. What can they possibly do from here to increase traffic per store? I predict they hit a wall this year.
Again, they can always accommodate increased traffic with new locations, but that's an expensive way to go. Much better financially to increase traffic in existing stores. Unfortunately, they won't be able to do this going forward.
Correction to title: EPS Growth is declining, not EPS. Don't want to mislead.
However, given the current trend I've identified, the trend line actually points to negative EPS growth within two years. Fact is, they can't continually increase traffic per store like they have the past three years. Once they hit peak traffic per store, one would expect quite a drop in EPS growth after that. They only way they can accommodate future traffic increases is to build new stores, and that costs a lot of money, which reduces EPS. Once traffic growth per store hits a wall, the financial metrics go to pot very fast.
They had a nice EPS bump this quarter, but the long-term trend is down. In fact, they hit a new low according to my charts. Since EPS growth over quarters or single years is rather meaningless (because of weather, timing of menu price increases, etc.), I have a chart that tracks EPS growth over a 3-year cycle. When you compare quarterly EPS growth to the same quarter THREE years ago, you see that EPS growth is on a long-term steady decline since they've been a public company. By the way, the latest quarter had the lowest 3-year EPS growth of all time.
So, the law of large numbers is starting to take hold at CMG. Any analyst that thinks EPS growth can be maintained over the next five years is crazy. The charts clearly show that CMG's EPS growth is dropping quite rapidly and consistently.
I agree. A bad economy will hit Jack, MCD and others a lot more than CMG. Jack, CMG and others know it as well. How long before they start really investing in fast casual? MCD did it before. That's probably why CMG is what it is today.
CMG picked a great niche. They have cheap inputs (tortillas, rice, and beans), they have a product that can be made in a minute (high put-through), they have a store base that is reasonable trendy, and it's profitable enough to attract a better quality employee. You can't replicate that with most food options.. A pizza takes a minimum of five minutes, and for that reason it won't have 20% of CMG's put through. The quick pizza folks will get nothing more than a small profit per store. The CMG Shophouse concept isn't going anywhere either. CMG won't invest heavily in either pizza or Shophouse because they know it will kill their numbers.
That said, competitors don't need CMG's put through to be profitable, especially if they franchise.
I bet they sell $30M before the end of next week. Any takers?
20% revenue growth is pretty good. But people automatically assume it can continue. I think I was the only person on the Apple message board shorting the stock at $700. People said it had plenty of room to grow. Problem is, there were 5 large competitors who didn't agree to Apple's growth plan. They undercut Apple on price, and produced a better product for the money, and they stole a bunch of their market share within a year. If it happened to Apple, it can happen to Chipotle. In this case, however, CMG is an ant compared to the competition. The large competitors didn't think CMG's niche was worth pursuing. Now that it's apparent CMG is taking their growth, what do you think the response will be?
She dropped hard through the 50 day. Now it's clear resistance. Dropping to the 100 day is a forgone conclusion. Add in the extreme multiple, and this this thing is a sitting duck.
Have you factored in declining revenues and earnings? As for the $160B cash, shareholders will never see it. It could very well be wasted on worthless acquisitions and executive comp. They'll most likely waste it all buying back stock as the company declines.
Unfortunately, a back office processing company valued at $13.3B per employee is too good to be true. It's a fat sheep in world of hungry wolves. Time to cash out.
MA and VISA won't change because they are a major beneficiary of the current system. They'll fight change, just like Kodak and Sears, while the innovators take over the space. Personally, I think there will be huge competitive entrants before end of year. MA's revenue will dry up. The fact that payment processing is growing fast internationally is actually a detriment to MA. It creates more incentive for others to innovate and take over the space.