Chipotle Mexican Grill, Inc. (NYSE:CMG) revealed Q4 earnings that were impressive, except for a minor sales miss. But apparently some CMG stock traders aren’t prepared to give this company the benefit of the doubt.
Some say it is the end of the growth story for CMG stock. And coupled with recent troubles with pork producers leaving pork off the menu at roughly a third of restaurants, some investors are worried Chipotle is in deep trouble.
But despite a dip for CMG stock after hours, Chipotle is still a hot buy — and here’s why:
Chipotle Profits are Strong
Despite the miss on revenue expectations, CMG stock posted profits that in fact edged out the analyst expectations.
One Sterne Agee analyst in particular, Lynne Collier, urges investors not to sweat the temporary drop in CMG stock price, noting Chipotle’s “unmatched” same store sales and high potential for international growth.
If Chipotle does have flaws, they’re flaws other fast casual dining places would love to have – impressive growth, and, if after-hours trading is any indication, share appreciation that’s too hot to handle.
The Way People Think about Food is Evolving…
…and Chipotle is setting the curve. CMG stock rose more than 1500% since its IPO before the financial crisis, and the old guards of quick service restaurants (QSRs), such as McDonald’s Corporation (NYSE:MCD), are doing their best to curb damage from the mass millennial exodus toward fast casual QSRs like Chipotle.
In “The Shake Shack Economy” — in reference to the recently IPO’d Shake Shack Inc. (NYSE:SHAK) — James Surowiecki attributes the attraction to fast casual as a wide-spread consumer desire to eat fresh, locally-sourced foods at moderate prices and convenience:
“The rise of Chipotle and its peers isn’t just a business story. It’s a story about income distribution, changes in taste, and advances in technology…even as the fast-food giants focused on keeping prices down, places like Panera Bread Co. (NASDAQ:PNRA) and Chipotle began charging higher prices. Their customers never flinched.”
In other words, Chipotle isn’t simply selling us food, it’s selling us a lifestyle.
CMG Growth is Red Hot
Chipotle is planning as many as 205 store openings for its fiscal 2015, which are roughly 50 stores opening per quarter.
CMG earnings show that in Q4 the company opened 60 stores, resulting in a 28% increase in revenue. With dozens of stores opening every quarter you can bet to see CMG stock post rising revenue as fast-casual food continues trending.
What’s more, new Chipotle ventures Pizzaria Locale and ShopHouse could drive growth even further.
Lowered COGS and Increased Prices
A diligent consumer keeps tabs on what’s going on in their eatery’s kitchen. The intelligent investor wants to know what’s going on inside the kitchen’s income statement. CFO Jack Hartung realizes this, and although he doesn’t currently have plans for an across the board menu increase in 2015, he is looking at higher value pricing for Chipotle’s steak and barbacoa items.
The last nationwide price increase was implemented during the second quarter of last year, acting as the grease to already lightning fast growth for CMG stock.
CMG earnings revealed a Q4 filled with increased beef, avocado and dairy costs, but Chipotle is forecasting a decrease in dairy prices for 2015. Lowered food costs coupled with the double whammy of more stores and price increases is the cherry on top of Chipotle stock.
And as for you carnitas fans, Chipotle will rotate its carnitas through its restaurants so consumers won’t have to go too long without their pork fix. That also means investors in CMG stock won’t have to fear the loss of sales, either.
As of this writing, John Kilhefner did not hold a position in any of the aforementioned securities.
