Chipotle Mexican Grill, Inc. (NYSE: CMG) investors have enjoyed seeing the stock price increase by 31.0% over the last month. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at the company’s expected growth and valuation based on its most recent financial data to see if there is further upside moving forward.
What’s The Opportunity In Chipotle?
According to our 10 valuation models, Chipotle seems to be fairly priced in the market at 9.5% above its intrinsic value. Meaning if you buy Chipotle today, you’d be paying a reasonable price for it. If you believe the company’s fair value is $382.91, then there’s not significant upside to be gained from mispricing.
|Analysis||Model Fair Value||Upside (Downside)|
|10-yr DCF Revenue Exit||$420.02||-0.8%|
|5-yr DCF Revenue Exit||$471.80||11.5%|
|Peer Revenue Multiples||$603.87||42.7%|
|10-yr DCF EBITDA Exit||$397.34||-6.1%|
|5-yr DCF EBITDA Exit||$441.37||4.3%|
|Peer EBITDA Multiples||$299.91||-29.1%|
|10-yr DCF Growth Exit||$325.17||-23.2%|
|5-yr DCF Growth Exit||$344.50||-18.6%|
|Peer P/E Multiples||$251.90||-40.5%|
|Earnings Power Value||$273.18||-35.5%|
Click on any of the analyses above to view the latest model with real-time data.
In addition, it seems like Chipotle’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its beta of 0.49.
Can We Expect Growth From Chipotle?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matters the most, a more compelling investment thesis would be high growth potential at a cheap price.
source: finbox.io data explorer
With EBITDA expected to grow on average of 15.9% over the next couple years, the future certainly appears bright for Chipotle. It looks like higher cash flows are in the cards for shareholders, which should feed into a higher share valuation.
What This Means For Investors
Growth investors typically look to invest in companies that are expanding sales, gaining market share and building customer bases. On the other hand, value investors often argue that the most successful investments are in companies that deliver the highest cash flows while trading at the lowest valuation.
But why not put those hands together? A company that has both growth and value characteristics would certainly make the most attractive investment. So what did we find out about Chipotle?
Chipotle’s optimistic future growth appears to have been factored into the current share price with the stock now trading near its intrinsic value. As a shareholder, you may have already conducted your fundamental analysis on the company and the stock’s recent appreciation may have been expected. Therefore, it may be time for investors to take some chips off the table. For prospective investors looking to purchase shares of Chipotle, it may be worth holding off until the stock develops a wider margin of safety.
It is important to note that there are a variety of other fundamental factors that I have not taken into consideration in this article. If you have not done so already, I highly recommend that you complete your research on Chipotle by taking a look at the following:
Valuation Metrics: what is Chipotle’s EBITDA less CapEx multiple and how does it compare to its peers? This is a helpful multiple to analyze when comparing capital intensive businesses. View the company’s EBITDA less CapEx multiple here.
Risk Metrics: what is Chipotle’s asset efficiency? This ratio measures the amount of cash flow that a company generates from its assets. View the company’s asset efficiency here.
Efficiency Metrics: is management becoming more or less efficient in creating value for the firm? Find out by analyzing the company’s return on invested capital ratio here.
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.