Chipotle: It Doesn't Make Sense

So this goes back to the premise of the article, does Chipotle still make sense? I think the evidence is quite clear. Not only does the company receive tremendous support from investors, it is clear that by its recent string of earnings beats the company continues to benefit from a strong loyal customer base that loves their burritos - one that generated strong customer traffic as well as stronger sales volume. To support the growing demand, Chipotle has gone through an aggressive expansion plan to where it now has 1,230 restaurants as it expanded by adding 150 new locations in 2011. But it does not plan to stop there as it said it will open between 155-165 new restaurants in 2012.

So for now, it seems the company's growth will continue and its stock price is deserving of such high multiple. During the conference call, the company's CEO and founder Steve Ells said the following:

"We're delighted that our continuing efforts to serve the very best food made from high quality ingredients raised with respect for the animals, the environment, and the farmers are resonating with our customers, allowing us to deliver double digit comps and record earnings during the quarter."

Bottom line

This is clearly a company that is not only doing all of the right things, but also says the right things. Chipotle has an excellent business that is thriving in a tough competitive environment. But from an investment standpoint it is hard for me to see the value in the shares at such an enormous P/E. But if there is a restaurant operator that deserves such a high multiple and demonstrates consistently that it can grow into its valuation while pleasing Wall Street, it is Chipotle. Its' proof is in the results. So who am I to say it doesn't make sense?

At the time of publication, the author was long AAPL and held no positions in any of the stocks mentioned, although positions may change at any time.

At the time of publication, the author was long AAPL and held no positions in any of the stocks mentioned, although positions may change at any time.

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