Value Stock #1: Chipotle Mexican Grill (CMG)
I have really gone back and forth on Chipotle Mexican Grill (CMG) as a value stock. I thought it was once outrageously overvalued and considered shorting. Then it seemed fairly priced. And now?
I have to admit that Chipotle is executing incredibly well, and I think it’s actually a value stock despite having almost doubled off its 52-week low of $307.
Take a look at CMG stock’s recent earnings. In Q4, revenue increased 21% to $844 million. Net income was up 29.8%. Same-store sales were up 9.3%. That last stat in particular is just outrageous for any industry, much less restaurants. For all of 2013, EPS was up by 19.7%, revenue by 17.7% and comps by 5.6%.
These numbers are fantastic.
With $30 a share in cash, CMG stock effectively trades at $515. I tend to do quick-and-dirty PEG ratio valuations, so here’s one for CMG. With $12.91 expected EPS in FY14, and a 22% long-term growth rate, I might normally put fair value at $286. However, a company in the midst of sustainable hyper-growth, with no debt, fantastic FCF and investors that continue to bid up the stock … that number frankly goes out the window.
It becomes an issue of what the market will pay, and the market is paying a premium, as it always has for CMG stock. I consider Chipotle a value stock until something truly awful happens.