Slightly Beaten Up (Thanks, Einhorn) Chipotle Stock Starts to Resemble a Reasonable Growth Play

You may prefer to nosh on a burrito bowl from Chipotle Mexican Grill (CMG) than a warmed-over hamburger at McDonald’s (MCD), but which stock would you rather own?

Both fast-food chains have announced some underwhelming financial data in recent days. McDonald’s surprised investors by reporting a slowdown in third-quarter profits and sluggish same-store sales. Chipotle did manage to record a 20% jump in profits – but that double-digit gain wasn’t enough to keep investors in this high-concept stock happy. Sure, same-store sales rose 4.8% -- but investors had anticipated a 5.4% increase. And Chipotle's PE ratio has taken a pounding, as a result.

CMG PE Ratio TTM Chart

CMG PE Ratio TTM data by YCharts

High-concept market darlings make for tricky investments, as Chipotle and its true believers are now discovering. Chipotle isn’t a cheap stock, as hedge fund manager David Einhorn has repeatedly pointed out, arguing that the company will face challenges from Taco Bell and its parent, Yum! Brands (YUM). (Taco Bell already is mimicking Chiptle’s menu offerings.) Chipotle’s devotees, however, border on the rabid and are unlikely to admit defeat readily: one AllianceBernstein fund manager who owned the stock even convinced his grade-school son to do a classroom presentation on why his fellow students want to dine at Chipotle.

But before you decide that the tried and true burger joint is a better value, ponder this chart for a moment. Sure, value is great – but it’s usually a good idea to juxtapose price and growth, as in this chart.

CMG PEG Ratio Chart

CMG PEG Ratio data by YCharts

Clearly, you’re paying less for every bit of growth that either Chipotle or Yum! Brands can squeeze out than you are if you buy McDonald’s at its recent lows. Moreover, the rate at which that PEG ratio is declining is steeper for both Chipotle and Taco Bell’s parent. If you’re risk averse, McDonald’s with its 3.49% dividend and well-established business model (not to mention its recent decision to follow the lead of Dunkin’ Donuts (DNKN) and trademark its coffee) may feel, well, safer. But if you’re looking for growth and don’t mind some volatility and uncertainty along the way, at today’s lower prices, Chipotle may be worth monitoring.

Suzanne McGee is a contributing editor at YCharts, which includes the just-released YCharts Pro Platinum for professional investors.

Read more articles about: Company Analysis  

blog comments powered by Disqus
Advertisement

Search Articles

Subscribe to YCharts Analysis

Advertisement

{{root.upsell.info.feature_headline}}.
Upgrade to {{root.upsell.info.tier_name}}. Start your {{root.upsell.info.tier_name}} Membership

{{root.upsell.info.feature_description}}

{{root.upsell.info.is_upgrade ? "Upgrade Now" : "Start My Free Trial"}}

Already a {{root.upsell.info.tier_name}} Member? Sign in here.