Investing in Chipotle (NYSE: CMG)

3 Ways Chipotle (NYSE: CMG) Can Stay on Top

Written by Brian Hicks
Posted October 31, 2014

cmgtodayOn October 21, I read the following headline …

Chipotle Plunges After Earnings


I didn't get it.

If you're a regular reader of these pages, you know I'm bullish on Chipotle (NYSE: CMG). And following earnings last week, I couldn't understand why the stock was tanking. The only negative news, if you want to call it that, was a 2015 same-store sales growth of “low to mid-single digit” percentages. Then it made sense.

After crushing it for so long, investors got used to the big numbers. The thought of growth not registering in the double digits spooked traders. Although I maintain that jumping ship because of single-digit growth was premature.

Look, the company beat on same-store sales growth with 19.8% versus a consensus of 17.2%. Net income surged year-over-year from $83.4 million to $130.8 million.

The company also noted higher food costs associated with its beef, dairy and avocados. But higher prices hasn't seemed to dissuade customers. I've yet to visit a Chipotle that wasn't frustratingly crowded.

Of course, that's not to say Chipotle should be complacent. Although the company's fundamentals are stellar compared to its competitors, all good things do come to an end. If Chipotle wants to ensure that “end” comes much further down the road, I offer the following suggestions:

For the sake of clarification, these are somewhat satirical with a thin layer of truth on the top

1.) Don't Rush Me!

The only fast food restaurant I ever go to is Chipotle. I probably eat there about once every two weeks. Typically when I forget to bring in my lunch or I'm on the road. So I do have some knowledge about how the company's various stores operate. One thing I've noticed in about 90% of the Chipotle restaurants I've visited is that ordering is stressful.

In theory, it should be easy and stress-free. You simply point out what you want, they make it, you pay for it and off you go. But here's the problem: After I place my order (burrito, tacos, salad, etc.), the folks behind the counter are so focused on speed that I feel like I'm being rushed.

White or brown? Black beans or pinto? What else?

But speed that up a bit so it sounds more like …

Whiteerbrow? Blackbinsrpin?

I get that this is “fast food,” but seriously? Is the time it takes to actually say the words going to have that much of an influence on how fast I get my food? It's bad enough that I have a dozen or so people behind me invading my personal space because they need a steak burrito like a junkie needs a fix. It almost feels like I'm inconveniencing the staff if I don't rattle off my demands at a machine gun pace.

2.) Beans in the Quesadillas

In most Chipotle restaurants, if you ask for anything in your quesadilla, other than meat, you'll be denied.

Apparently, the juice from the beans can somehow mess up their quesadilla maker. I guess the juice gets on the hot surface and burns. I suppose I can imagine how frustrating it would be to try to make a quesadilla on a machine that's covered in burned black bean juice.

But here's the dilemma …

Chipotle is a billion-dollar company. You mean to tell me you can't get a machine that can alleviate this problem? Incidentally, I did go to a Chipotle in upstate NY where they had no problem putting some black beans in my quesadilla.

I've also been told they can't put those fried onions and peppers in the quesadilla either. But there's no juice in those. To be honest, I somewhat chalk this up to laziness since that one Chipotle restaurant was able to honor my request – and without any hassle.

3.) Hot Sauce

Would it kill you to offer something other than Tabasco?

Don't get me wrong. I love Tabasco. I use it often. But options are nice, too. How about some Crystal, Sriracha, or Cholula? These are major brands, and pretty easy to get.

Or up the ante a bit and offer some local or artisan hot sauces. Note to Chipotle: Check out High River Hot Sauces out of New York. Their “Tears of the Sun” and “Rogue” sauces are delicious on your burritos.

A Fair Value

I don't actually think Chipotle has anything to fear in terms of unimpressive growth for the foreseeable future. But it doesn't hurt to look for any little improvements that can be made along the way.

As far as an investment opportunity, I still like Chipotle. However, I don't think it's going to make you rich at this point. The big surge has passed. With steady growth ahead – and in the absence of any major downturn in the broader market – Chipotle is probably fairly valued at about $660 a share.