Chipotle Mexican Grill Inc (CMG, Financial) has seen a daily gain of 5.94%, with a 3-month loss of -13.48%. The company's Earnings Per Share (EPS) stands at 40.04. These metrics raise the question: is the stock modestly undervalued? In this article, we delve into the valuation analysis of Chipotle Mexican Grill. Read on to gain insights into the company's financial performance and future prospects.
Company Overview
Chipotle Mexican Grill is the largest fast-casual chain restaurant in the United States, with systemwide sales of $8.6 billion in 2022. The company operates nearly 3,200 stores, majorly in the United States, with a small presence in Canada, the U.K., France, and Germany. Its offerings include burritos, burrito bowls, tacos, quesadillas, and beverages, with a selling proposition built around competitive prices, high-quality food sourcing, speed of service, and convenience. The company generates its revenue entirely from restaurant sales and delivery fees.
Comparing the stock price of $1913.82 per share and the GF Value of $2188.32, it appears that Chipotle Mexican Grill (CMG, Financial) is modestly undervalued. This assessment paves the way for a deeper exploration of the company's value, combining financial assessment with essential company details.
Understanding GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. It is calculated based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has traded.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
According to this method, Chipotle Mexican Grill (CMG, Financial) appears to be modestly undervalued. The GF Value estimates the stock's fair value based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns.
Given that Chipotle Mexican Grill is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Chipotle Mexican Grill has a cash-to-debt ratio of 0.35, which ranks worse than 50.43% of 345 companies in the Restaurants industry. Based on this, GuruFocus ranks Chipotle Mexican Grill's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Chipotle Mexican Grill has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $9.30 Bil and Earnings Per Share (EPS) of $40.04. Its operating margin of 15.82% better than 89.94% of 348 companies in the Restaurants industry. Overall, GuruFocus ranks Chipotle Mexican Grill's profitability as strong.
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Chipotle Mexican Grill's 3-year average revenue growth rate is better than 89.6% of 327 companies in the Restaurants industry. Chipotle Mexican Grill's 3-year average EBITDA growth rate is 29.6%, which ranks better than 82.97% of 276 companies in the Restaurants industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Chipotle Mexican Grill's ROIC was 18.13, while its WACC came in at 10.72.
Conclusion
In conclusion, the stock of Chipotle Mexican Grill (CMG, Financial) shows every sign of being modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 82.97% of 276 companies in the Restaurants industry. To learn more about Chipotle Mexican Grill stock, you can check out its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
