Chipotle Mexican Grill is suitable for the Enterprising Investor but not the Defensive Investor, who is concerned with the lack of dividend payments and the high PEmg and PB ratios. The Enterprising Investor, on the other hand, is only initially concerned by the lack of dividends. As a result, all value investors should feel very comfortable proceeding to the next part of the analysis, which is a determination of the company’s intrinsic value.
When it comes to that valuation, it is critical to consider the company’s earnings history. In this case, the company has grown its EPSmg (normalized earnings) from $3.77 in 2010 to $10.53 for 2014. This is a very strong level of demonstrated growth but no growth that high is sustainable. Historical growth is actually around 35.8%, and the market has priced in an expected decrease to only 27.8% but even that is not achievable over a 7-10 year period. As a result, the ModernGraham valuation model returns an estimate of intrinsic value falling below the current price, indicating the company is overvalued at the present time.
Be sure to check out previous ModernGraham valuations of Chipotle Mexican Grill Inc. (CMG) for greater perspective!
Disclaimer: The author did not hold a position in Chipotle Mexican Grill Inc. (CMG) at the time of publication and had no intention of changing that position within the next 72 hours. Logo taken from Wikipedia for the sole purpose of identifying the company; this article is not affiliated with the company in any manner.