Chipotle 3-Year Run Torches Apple, Obliterates Doubters: Isn’t That a Sure Sign the Burrito Joint is Overpriced?

Chipotle Mexican Grill’s (CMG) wild gains should have been over by now, considering it’s now the third biggest restaurant chain on the market instead a just a niche burrito maker. But you wouldn’t know that by looking at its share price, which has hit a new 52-week high most trading days this year. Not a lot of investment experts saw that coming.

Chipotle shares are up more than 20% this year. That makes a 60%-plus gain for the past 12 months and 470% plus gain for the past three years – a figure that made it a better investment than Apple (AAPL).

Chipotle Mexican Grill Stock Chart

Chipotle Mexican Grill Stock Chart by YCharts

So is Chipotle really the Apple of the burrito business? People who invest the big money seem skeptical. More hedge funds own Apple as a Top 10 investment than any other stock, and analysts’ buy recommendations on its shares outweigh holds more than 5 to 1. Chipotle doesn’t even make the list of important hedge fund stocks, and its shares get a decidedly more mixed reception among analysts. YCharts Pro gives the company great marks for fundamentals but the worst possible score for share valuation.

Chipotle Mexican Grill Price / Sales Ratio Chart

Chipotle Mexican Grill Price / Sales Ratio Chart by YCharts

It’s easy to see why that’s such a non-starter for most investors. Even at the end of the 2011, Chipotle shares were selling for about 49 times historic earnings, which seems ridiculous for a company expected to achieve only 27% earnings growth in 2012. Yet here we are, some $65 or so poorer for every share of Chipolte we didn’t buy in January.

The company’s own statements in February don’t seem to justify paying Chipotle’s PE. The company will increase its number of restaurants this to about 1,390, a 13% rise, or about the same as last-year’s additions. But it forecasts only “mid-single digit” comparable store sales growth, and that would be much lower than last year’s 11.1% average. Moreover, the company forecast food cost increases in the mid single digits too. Those costs are about 32% of sales.

There’s a good chance Chipotle may be underestimating those food cost increases, too. Corn and grain prices are hitting records again despite the much bigger crops under cultivation now. China’s demand is rising fast, and South American crops were hurt by drought. Meanwhile, Chipotle customers will be paying more for food at the grocery stores too, leaving them less money for $7 burritos. Rising gasoline prices could cut into customer spending too, and raise Chipotle’s costs further.

The company obviously still has growth fans in the market, despite Chipotle’s market cap of $13 billion. Its shares have treated investors very well so far, long after reason said they couldn’t. It also has enough cash to do an Apple and start paying a dividend it chooses.

Chipotle Mexican Grill Cash and ST Investments Chart

Chipotle Mexican Grill Cash and ST Investments Chart by YCharts

But shares of big, mature companies are very rarely worth 60 times earnings, and Chipotle is looking all-but-grown-up now. With a difficult year ahead, it’s probably not a good time to treat it like a kid.

Dee Gill is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings, stock screener and portfolio strategies.

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