We all love Chipotle, but So Does Wall Street
After yet another highly successful quarter from Chipotle Mexican Grill, it begs the question of what are they doing right that so many other restaurants are failing to do? The restaurant chain announced 4th quarter revenue growth of 10.6% and digital revenue growth of 65.5%, which now account for 12.9% of all Chipotle sales.
That’s the kicker. Chipotle has completely changed the game through their digital sales model. While reporting astounding numbers for digital sales overall, they have been totally transparent and honest about their digital sales, unlike some companies. Not going to name names. (McDonald’s). According to the conference call, Chipotle intends to spend another $90 million on mobile ordering initiatives. Including their new “Chipotlanes“, the potential pick-up window for mobile orders specifically. This would dramatically enhance the pick up speed and experience.
Chipotle also opened 137 new stores in 2018, a 25% decrease in store expansion from 2017. This brings their total store count to 2,491. A decrease in store count growth was expected for Chipotle, considering that most of their spending went to enhancing the current store experience. That’s highlighted by the comparable restaurant sales growth being up 6.1% from the same time last year.
It’s always great to see a food chain business that seems to be firing on all cylinders. The only catch is that all the buzz regarding Chipotle’s phenomenal year is already reflected in the stock price. Chipotle’s shares are up 127% in the past year alone. With around $176 million in net income they are valued at just over $16 billion. That means they are trading at a price to earnings multiple of 90.91.
While digital sales look great it’s hard to get over the fact that their P/E Ratio is more than 3 times larger than the industry average. Revenue growth was barely over 10%, and investors are treating Chipotle like their burritos cure cancer. I love the food, I love the company, but I hate the stock.
Disclosure: We are not financial advisors, and the author may have interest in the companies talked about.