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A short Chipotle analysis



In finding companies to invest in, the numbers are usually the number one focus.  Does the company earn enough to justify the price?  Are the earnings growing at a fast enough clip?

Many investors ignore the “fuzzy factors”, one of which is good management.  Management is at 2 levels.  At the top, there are the shareholders, such as you and I.  We appoint the Board of Directors, which is the top level of management, who oversee the company.  The BoD hires the executive team, which is the next level of management.

Articles such as this have their own biases, which I am aware of.  However, it does give me pause when the management acts as the article says they do.

Chipotle is a wait-and-see stock from my viewpoint.  The fuzzy factors of management is suspect, in my eyes, and the P/E multiple is currently in the 40s, although the earnings are set to recover back to 14/share.  Even at that earnings rate, you are looking at a 27 P/E multiple.  Restaurants should hover between a 15-20 P/E, unless there is a huge growth trajectory.  If you invert the P/E, that is the earnings yield on your investment.  27 is a 3.7% yield, while 15 is a 6% yield.

It’s a long article, but I think it’s worth the read.

Read Full Story: Chipotle Eats Itself | Fast Company | Business + Innovation