Screaming Short: Chipotle Mexican Grill

Chipotle Mexican Grill (NYSE: CMG ) makes some mighty tasty dishes. It is also
a great, simple restaurant concept. I believe the company will be around for a
long time, and might even be purchased by a larger company someday. As for right
now, however, the stock is wildly overpriced and screaming short-sell! All of
the companys valuations are out-of-whack by even the most generous metrics for a
high-growth company. It is growing rapidly estimates are for earnings to rise
21% this year, and another 26% next year, on revenue increases of 23% and 19%,
respectively. Even the five-year growth rate is solid at 20%. But the stock
trades at a P/E of … get this … 49! Im all for giving a strong, high-growth
company with mountains of free cash flow a premium, but that's just
ridiculous. And certainly, Chipotles $242 million of trailing-12-month free cash
flow is impressive and bigger than previous years. But it is expensive on every
other valuation metric. The price-to-book ratio is 10.47. Price-to-sales is
4.85. Enterprise value to EBITDA is 24.4. These are all the highest they have
ever been. Lets put it in other terms. The value of each individual McDonalds
(NYSE: MCD ) restaurant in relation to the companys market cap is about $2.87
million. Family members who own stores tell me it takes about $1.4 million to
build a restaurant from scratch, so a mature store would be worth double that.
Chipotle stores cost roughly the same to build, but even if they cost twice as
much, the present value of an individual Chipotle restaurant is $9.47 million.
Theres no way that makes sense! Next, the company itself disclosed that
"inflationary pressures and freezes in Mexico and Florida" are impacting it.
As the company said, "Due to continued inflationary pressures, we expect food
costs primarily dairy and meats to increase further in the second half of the
year. However, we expect food costs as a percent of revenue to decrease in the
second half of 2011 due to menu price increases. The company is in a tight spot
with costs, and it expects consumers to absorb those cost increases. If the
economy fails to recover, I would not be so optimistic. I also dont care for the
same-store sales numbers. Yes, they were up 11.3%, but that was partially
triggered by a 4.5% menu price increase. Management also guided same-store
numbers into the low-single-digits for 2012. Read that again not high digits,
but low. I think analyst estimates are actually a bit high as a result. Ive seen
this story before. Look at the chart of Cheesecake Factory (NASDAQ: CAKE ) and
the chart of P.F. Changs China Bistro (NASDAQ: PFCB ).