Tags: Chipotle | CMG | restaurant | stock

Slowing Growth for Chipotle Mexican Grill?

By    |   Thursday, 28 Jul 2011 03:54 PM

Since it was spun off by McDonald’s (MCD) in 2006, Chipotle Mexican Grill (CMG) has mostly rewarded growth stock investors very well. Investors who purchased shares at the IPO (or at the bottom of the recent bear market) have seen their investment increase eightfold. The casual food chain has more than doubled the number of restaurants it owns in the 5 1/2 years since it went public.

The Chipotle business model is to offer a limited-menu lineup of Mexican-style burritos, tacos, and salads made with fresh, natural ingredients. The typical Chipotle meal costs $8 to $10. The majority of Chipotle Mexican Grill restaurants are located in strip-mall shopping centers. As of the end of June, the company owned 1,131 restaurants.

For the second quarter of 2011, CMG reported net income of $1.59 per share on revenues of $571.6 million. These results were up 22 percent and 9 percent, respectively, from the same quarter in 2010. Same-store sales results were 10 percent higher than the second quarter 2010 sales. The balance of revenue growth was from new stores opened in the last year.

The Wall Street consensus estimates for the quarter were income per share of $1.68 on sales of $558 million. Company management stated that lower profit margins were due to higher ingredient costs during the quarter. The company also took a loss on an investment in the closed America's Next Great Restaurant program, which reduced EPS by 5 cents.

Growth story

Chipotle management projects same-store sales growth at approximately 10 percent per year. Planned new store openings total approximately 140 for the year, kicking in another 10 percent-plus in revenue growth. On these levels of projected growth, investors have pushed the CMG share price to about 50 times the estimated 2011 earnings.

Analyst Steve West of Stifel Nicolaus notes that Chipotle Mexican Grill is one of the few growth stock stories available to profit from consumer demand. The current, relatively small, $10 billion market cap makes the stock attractive to both individual investors and professional money managers.

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Since it was spun off by McDonald s (MCD) in 2006, Chipotle Mexican Grill (CMG) has mostly rewarded growth stock investors very well. Investors who purchased shares at the IPO (or at the bottom of the recent bear market) have seen their investment increase eightfold. The...
Chipotle,CMG,restaurant,stock
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2011-54-28
Thursday, 28 Jul 2011 03:54 PM
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