After 50% YTD Run, Chipotle’s Stock is Stuffed at $320
Chipotle (NYSE:CMG) has performed exceptionally well this year. The stock is up more than 50% this year, outperforming the market indexes significantly. The last six months in particular have seen the stock rising 25% whereas the Dow Jones was flat. Investors are increasing bullish about this restaurant chain which has seen the number of outlets grow rapidly. However, the current rally might have just pushed the envelope, and we expect this optimism will fade. Chipotle competes mostly with the quick service and casual dining segment such as Chili’s, McDonald’s (NYSE:MCD), Burger King, Yum! Brands (NYSE:YUM) and Papa John’s, among others.
See our complete analysis for CMG stock here
Expansion Not Unexpected
Chipotle has seen the number of restaurant outlets surge from 700 in 2007 to about 1,200 currently. However, this expansion did not come as a surprise. This year the company expects to add about 145 restaurants by the end of the year, which is only slightly higher than our estimate of 140. [1] Here you can see our forecast of the number of restaurants.
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The company also opened its first Asian-cuisine restaurant, named ShopHouse Kitchen, in Washington DC. Only time will tell if the idea of their favorite Mexican restaurant serving them Asian cuisine appeals to consumers. Going forward, we also believe the profitability might be affected due to high commodity prices, capital expenditure and increased marketing spend to create brand awareness.
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European Expansion
Part of the company’s expansion plans are to open more restaurant outlets in Europe. The company opened its first restaurant in London earlier this year and soon aims to open one in Paris. However, with the European debt crisis never seeming to get over, the European expansions might take a backseat for the time being.
We have a $321 price estimate for Chipotle, which is about 5% below the current market price.
Understand How a Company’s Products Impact its Stock Price at Trefis
- Eateries Like Chipotle, Panera Gobble Shopping Space, December 8, 2011 [↩]