Is overvalued Chipotle? (The Motley Fool)

By Adam j. Crawford Adam j. Crawford - Wed Apr 13, 4: 12 pm EST

Chipotle(NYSE: CMG - News) stock continues to impress, but each momentum stock lost finally steam. How do you know when to jump from the train of momentum? You can rely on intuition - probably a bad idea - or crunch the numbers and see if they add up to. We will get out the calculator and determine whether the price of the shares of Chipotle could be directed to the South of the border.

A glance at los witnessed
Growth of Chipotle means selling more than burritos, by the increase in same store sales and by adding stores. In the recent conference call, management projected same store sales increase in the "low single figures. For my analysis, I will call 3%. Management also plans to add stores 135 - 145 in 2011 say that 140.

In the last four quarters, the company has approximately 10% of the sales of the bottom line. The following table extends these assumptions over the next two years.

Metric2010 245.1 million in 2011 (forecast) 2012 (forecast) (actual) $ 213.6 million dollars, or $6.89 action or $7.91 by action

So should what value we place us on this performance? In the restaurant industry, the P/E before average oscillates around 20. But probably Chipotle has a greater potential growth that big chains of restaurants as a former parent McDonald (NYSE: MCD - News), so that it deserves a P/E greater than 14 for the Golden Arches.

But how much higher? Peter Lynch has if said, "the ratio of P (E) of any company which is quite a price is equal to its rate of growth." Lynch was referring to annual growth rates. Analysts predict approximately 20% annual growth in five years for a little higher than what we have here Chipotle. But we will run with this number.

Here is the calculation of the value of stock, assuming a P/E multiple equal to the rate of projected growth of analysts, with a few multiple higher for comparison:

The bottom line
With a recent price of $281, it would seem that Chipotle has touched its peak. In the light of reports P/E generous that I applied to future earnings, of huge investors expectations may have left the company overvalued.

If you are looking for growth in restaurants without the gaudy prices, see Dave celebrates America (Nasdaq: DAVE - News) and Tim hortons (NYSE: THI - News). The two restaurant chains have PEG ratios less than 1, signaling that their bottom lines grow faster than their share prices.

Contributor Fool selection Motley Fool rule Breakers. Tim Hortons is a Motley Fool Global Gains recommendation. Chipotle is a selection of Motley Fool Hidden Gems. McDonald is a choice of Motley Fool income investor. The mad is the owner of the shares of Chipotle. Try our services Foolish newsletter free of charge for 30 days. Us Fools can not all hold the same views, but we believe that treat a wide range of ideas makes us better investors. The Motley Fool has a disclosure policy.

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