Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk. Â This isÂ best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another companyÂ or by reviewing theÂ 10 Companies Benjamin Graham Would Invest In Today – February 2016.Â By using theÂ ModernGraham methodÂ one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries. Â What follows is a stock analysis showing a specific look at how Chipotle Mexican Grill Inc (CMG)Â fares in theÂ ModernGraham valuation model.
Company ProfileÂ (obtained fromÂ Google Finance): Chipotle Mexican Grill, Inc. (Chipotle) develops and operates Chipotle Mexican Grill restaurants, which serve a focused menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads. The Company operates 1,755 restaurants in the United States, seven in Canada, six in England, three in France, and one in Germany. The Company’s restaurants also include nine ShopHouse Southeast Asian Kitchen restaurants. The Company owns and operates two Pizzeria Locale restaurants, a fast casual pizza concept. It also provides a variety of extras, such as guacamole, salsas and tortilla chips seasoned with fresh lime juice and kosher salt. Its restaurants also offer sodas, fruit drinks, organic milk, beer and margaritas. The average restaurant size is about 2,550 square feet and seats about 58 people. The Company’s restaurants also feature outdoor patio space. The Company’s restaurants accept orders by fax, online or through an iPhone or Android ordering application.
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Downloadable PDF version of this valuation:
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
|Defensive Investor; must pass 6 out of the following 7 tests.|
|1. Adequate Size of the Enterprise||Market Cap > $2Bil||$15,417,534,039||Pass|
|2. Sufficiently Strong Financial Condition||Current Ratio > 2||2.91||Pass|
|3. Earnings Stability||Positive EPS for 10 years prior||Pass|
|4. Dividend Record||Dividend Payments for 10 years prior||Fail|
|5. Earnings Growth||Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end||313.51%||Pass|
|6. Moderate PEmg Ratio||PEmg < 20||45.95||Fail|
|7. Moderate Price to Assets||PB Ratio < 2.5 OR PB*PEmg < 50||7.29||Fail|
|Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.|
|1. Sufficiently Strong Financial Condition||Current Ratio > 1.5||2.91||Pass|
|2. Sufficiently Strong Financial Condition||Debt to NCA < 1.1||0.00||Pass|
|3. Earnings Stability||Positive EPS for 5 years prior||Pass|
|4. Dividend Record||Currently Pays Dividend||Fail|
|5. Earnings Growth||EPSmg greater than 5 years ago||Pass|
Stage 2: Determination of Intrinsic Value
|MG Growth Estimate||9.62%|
|MG Value based on 3% Growth||$155.47|
|MG Value based on 0% Growth||$91.14|
|Market Implied Growth Rate||18.73%|
|% of Intrinsic Value||165.59%|
Chipotle Mexican Grill, Inc. is suitable for the Enterprising Investor but not the more conservative Defensive Investor. The Defensive Investor is concerned with the poor dividend history, and the high PEmg and PB ratios. The Enterprising Investor is only concerned with the lack of dividends. As a result, all Enterprising Investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $6.53 in 2012 to an estimated $10.72 for 2016. This level of demonstrated earnings growth does not support the market’s implied estimate of 18.73% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price. Chipotle Mexican Grill, Inc. receives an average overall rating in the ModernGraham grading system, scoring a C-.
Stage 3: Information for Further Research
|Net Current Asset Value (NCAV)||$6.91|
|Number of Consecutive Years of Dividend Growth||0|
|ModernGraham tagged articles||Morningstar|
|Google Finance||MSN Money|
|Yahoo Finance||Seeking Alpha|
Most Recent Balance Sheet Figures
|Balance Sheet Information||Dec2015|
|Total Current Assets||$814,647,000|
|Total Current Liabilities||$279,942,000|
|Shares Outstanding (Diluted Average)||31,494,000|
Earnings Per Share History
|Next Fiscal Year Estimate||$5.67|
Earnings Per Share – ModernGraham History
|Next Fiscal Year Estimate||$10.72|
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The author did not hold aÂ position in any company mentioned in this articleÂ at the time of publication and had no intention of changing that position within the next 72 hours. Â See my current holdings here. Â This article is not investment advice; any reader should speak to aÂ registeredÂ investment adviser prior to making any investment decisions. Â ModernGraham is not affiliated with the company in any manner. Â Please be sure to review our detailed disclaimer.
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