Should You Buy Chipotle Mexican Grill, Inc (NYSE: CMG) When Prices Drop?

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Chipotle Mexican Grill, Inc (NYSE: CMG), a consumer discretionary company with a market capitalization of $11.7 billion, saw its share price increase by 32.2% 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 shares still be trading at a relatively cheap price? Let’s take a look at Chipotle’s outlook and value based on its most recent financial data to see if there are any catalysts for a price change.


Is Chipotle Still Cheap?

The stock seems fairly valued at the moment according to 10 separate valuation analyses. Shares are trading roughly 8% above its intrinsic value. This means if you were to buy Chipotle today, you’d be paying a reasonable price for it. If you believe that the stock is really worth $381.53, then there isn’t much room for the share price to appreciate beyond where it’s currently trading.

Chipotle Mexican Grill, Inc Valuation Detail
Analysis Model Fair Value Upside (Downside)
10-yr DCF Revenue Exit $418.95 0.8%
5-yr DCF Revenue Exit $470.12 13.1%
Peer Revenue Multiples $604.79 45.5%
10-yr DCF EBITDA Exit $393.55 -5.3%
5-yr DCF EBITDA Exit $436.03 4.9%
Peer EBITDA Multiples $296.90 -28.6%
10-yr DCF Growth Exit $326.08 -21.5%
5-yr DCF Growth Exit $345.48 -16.9%
Peer P/E Multiples $249.79 -39.9%
Earnings Power Value $273.60 -34.2%
Average $381.53 -8.2%

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.


What Does The Future Of Chipotle Look Like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations.

Chipotle projected ebitda chartsource: 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.


How This Impacts You

Many investors separate stocks into value and growth categories based on quantitative metrics. However, one of the most famous investors in the world views this as foolish. In Warren Buffett’s 1992 letter to Berkshire Hathaway shareholders, Buffett touches upon a subject at odds with much of the investment industry:

“Most analysts feel they must choose between two approaches customarily thought to be in opposition: ‘value’ and ‘growth.’ Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing. We view that as fuzzy thinking… In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value.”

While investors tend to categorize stocks into value and growth, some of the most successful investors view growth as simply one component of a company’s value.

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.

But before making an investment decision, I recommend you continue to research Chipotle to get a more comprehensive view of the company by looking at:

Risk Metrics: what is Chipotle’s Altman Z score? It’s a famous formula used to predict the probability that a firm will go into bankruptcy within two years. View the company’s Altman Z score here.

Valuation Metrics: how much upside do shares of Chipotle have based on the Ben Graham Formula? Take a look at our Ben Graham Formula data explorer which also compares the company’s upside to its peers.

Efficiency Metrics: how much free cash flow does Chipotle generate as a percentage of total sales? Has it been increasing or decreasing over time? Review the firm’s free cash flow margin 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.

Expertise: financial technology, analyzing market trends. Brian is a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to research stock fundamentals. Brian’s background is in physics & computer science and previously worked as a software engineer at GE Healthcare. He enjoys applying his expertise in technology to help find market trends that impact investors. Brian can be reached at brian@finbox.io or at +1 (516) 778-6257.

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