Chipotle Mexican Grill
Chipotle Mexican Grill
SummaryChipotle made waves that a burger concept is under development.
The size and scale of the Chipotle Mexican Grill concept combined with the length of time required to build a new concept makes the effort virtually worthless.
The recommendation remains to avoid Chipotle until the health scare lapses and possibly permanently if the company moves forward with a concept in the crowded burger space.
The surprising news yesterday was that Chipotle Mexican Grill (NYSE:CMG) is in the initial stages of developing a burger chain. Whether anything ever comes of the concept, the stock will likely never benefit from what is now the fourth chain in the family. Patent and Trademark Office.
In the premium market, both Shake Shack (NYSE:SHAK) and Habit Restaurants (NASDAQ:HABT) are already public with huge head starts on Chipotle. would immediately have well established competition.
At the same time, Chipotle still needs to prove the company can provide better Mexican food in a healthy manner. The company opened a permanent kiosk back in 2004 and has reached around 50 company owned locations with revenues slightly below $200 million last year.
In the case of Habit Restaurants, the concept started a long time ago. The mostly California based burger chain had over $230 million in revenue last year with around 150 locations. The stock is only worth $500 million now.
Even with the recent health scares, Chipotle had revenues of $4.5 billion last year. As well, the Mexican concept has over 2,000 locations and plans to add over 220 this year.
On top of that, the ShopHouse and Pizzeria Locale concepts are already expanding. If anyone needs an example of how a newer burger concept isn’t likely to impact Chipotle stock for over a decade if not ever, the ShopHouse opened the first location in 2011 and is hardly even mentioned when discussing the stock. Chipotle ended the year with 13 locations and didn’t even discuss ShopHouse during the Q4 earnings call.canada goose
The quickest way to value creation is for Chipotle to recapture the $300 per share and nearly $9 billion in market value lost from the peak due mostly to the health scare at the namesake locations. In addition, the company will open far more Chipotle stores in the years ahead. Heck, the company will open more Chipotle locations this year than Shake Shack and Habit have open now.
The magnitude of the numbers suggest that any time and money the company spends on a burger concept are practically wasted. Another player in the burger sector would impact the established players more than a concept that would trade above $20 billion now if not for a health scare.
The news makes me ever more concerned that Chipotle Mexican Grill is losing focus on the market that brought the stock a large valuation. The last thing the company needs is another concept distracting the management team from the golden goose. Especially considering, the other concepts aren’t even proven at this point despite years of development.
My recommendation stands that the stock is overvalued at the current price. My previous thought was to avoid Chipotle until a better price emerged and the health scare lapsed. Now my concern is that management isn’t properly focused on overcoming the damaging health concern. If any more signs emerge that Chipotle is moving forward on the burger concept, my interests in the stock will completely evaporate.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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