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October 19, 2012 – Comments (3) | RELATED TICKERS: CMG

This is a quick pitch.  CMG got trashed today because it missed revenue and earnings estimates by a percent or two, and missed expected comps growth by about 50% (4.8%, expected 8-9%).

I don't think comps is the right way to evaluate the stock.  Their growth comes from adding 13-15% new stores per year and quickly getting them up and running, and they are masterful at this.  They don't change the menu, run significant promotions, nor spike prices - comps is not their focus.  In fact the CEO spent time during today's report talking about promoting crew members to the GM and Restauranteur position in order to assure that the Chipotle brand can continue to grow without blemishes from management forgetting or not understanding the company's core values.

I like that in a company.  I like it a lot that the Founder CEO has the courage to get up and talk about core values in the face of a Wall St audience that is looking for a quick fix with comps.  I like it that the company is growing anything at all given the absolutely horrible macro environment - cost of food inputs has gone up 33% for CMG in the last year and they're still growing comps.  I like that CMG offers real local food, not someone's chemistry experiment, and that they stay committed to their proven model even when everybody and their brother thinks they ought to try to shake it up.

I like their no debt on the sheet (<1% LTD), I like their trailing P/E which as of today is 26; I like their predicted growth of 13% a year based solely on new store openings; I like their ability to top that off with comps growth, even if it be 4%; and I like their forward P/E and PEG, which I won't write here because they are my guesstimates, not real numbers.  Run the numbers yourself and see what you get.

My call on CMG, right here, right now, price $241:  Back up the truck. 

3 Comments – Post Your Own

#1) On October 19, 2012 at 3:01 PM, ikkyu2 (99.15) wrote:

Er, disclosure:  I am long CMG and got more long today.

I am pitching this thesis, as always, to someone with a 5-year investment horizon and have deliberately avoided discussing the stock's short interest and other short-term movers and catalysts because those things are totally irrelevant to me.  If you're looking for a quick trade, don't look here - I can't help you.

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#2) On October 20, 2012 at 11:34 AM, shamapant (79.94) wrote:

I actually think I'm going to wait till Einhorn-mania has worn off. I bet I can get below 200 before it grows away from me.

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#3) On October 20, 2012 at 2:31 PM, ikkyu2 (99.15) wrote:

Yeah, man, wait until a debt-free company that just got trashed for their crappy 20% y-o-y earnings growth drops below a P/E of 20.

You may be waiting quite a while. 

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