Chipotle Stock: Overpriced Ahead of Q3 Earnings Report?

Chipotle is slated to release its Q3 earnings after the close this evening

Oct 21, 2020 at 10:14 AM
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Chipotle Mexican Grill, Inc. (NYSE:CMG) is a wildly popular Mexican-style restaurant originally based out of Colorado most well-known for its build-it-yourself burritos and dishes. Since its creation in 1993, Chipotle has expanded its locations all across the U.S., as well as other countries including Canada, the U.K, France, and Germany. CMG stock has grown approximately 57% year-to-date, and CMG stock has more than tripled since hitting its 52-week low of $415. CMG stock is currently nearing its Sept. 2 all-time high of $1384.46. Moreover, the CMG stock will be looking to continue its significant growth today after the company reports its earnings after the bell today.

Let's dive into the fundamentals behind this company that have not been discussed in our Chipotle breakdown earlier this week. Chipotle has a market cap of $37.71 billion and a book value of $60.95 per share. The company's price-to-book ratio stands at 21.98. Chipotle has a trailing price-earnings ratio of 148.52 and a forward price-earnings ratio of 64.10.

Chipotle has beat expectations on all four of its most recent quarterly earnings reports.  In the most recent quarter that has been reported, the company beat their target by $0.05. They reported an earnings per share (EPS) of $0.40 instead of the expected $0.35. For the upcoming earnings report, Chipotle is expected to report an EPS of $3.40, resuming CMG stock's upward trajectory after a huge dip in the second quarter of this year. In the third quarter of 2019, Chipotle reported its best quarter in 12 months. The company surpassed earnings expectations in a major way with a reported EPS of $3.82, beating expectations by $0.60. Chipotle has a trailing 12-month EPS of $9.02.

Revenue from Chipotle has grown on an annual basis since 2016 by at least $300 million per year. The company is unlikely to grow revenue at that same rate this year, but might still manage to retain or demonstrate slight growth given the pandemic-related circumstances. In 2019, Chipotle grew revenue by more than $700 million. Chipotle has also maintained its revenue consistently over the last four quarters despite the on-going pandemic.

The company’s net income has also demonstrated consistent growth over last four years. Chipotle had major net income growth in 2017 and 2019. The company grew its net income by more than $150 million in 2017, and by about $125 million in 2019. However, over the past 4 quarters, Chipotle has reported a general decline in net income.

Chipotle currently has $906.66 million in cash and $3.01 billion in total debt. The company’s balance sheet holds $5.37 billion in total assets and $3.666 billion in total liabilities. Chipotle's total equity stands at $1.71 billion.

Chipotle has done surprisingly well as far as earnings go over the past 2 quarters despite the virus outbreak. It can only be assumed that 2020 could have been an incredible year of revenue growth for the company had it not been for COVID-19. Investors looking to buy CMG stock stock will potentially have that growth to look forward to in the future. Chipotle’s balance sheet isn’t amazing, but it is very manageable. The big problem for investors right now is that CMG's stock price just isn’t justifiable. CMG stock may continue growing, but it won’t yield enough of a return for it to be worth the investment at this time. There are simply better deals on the market right now.

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