NEW YORK (TheStreet) -- A friend of mine once told me, "Never underestimate the power of great burrito." He said this jokingly because I loathed the idea of overspending for a meal I believed was worth half the price.There's a correlation here with Chipotle Mexican Grill ( CMG), whose stock I've always thought was expensive. I won't disagree that Chipotle makes a "powerful" burrito. But I continue to worry investors are too willing to give Chipotle the benefit of the doubt as the company's operational performance has not been up to par when compared to Yum! Brands ( YUM) and McDonald's ( MCD). Remarkably, as Chipotle's margins are compressing and same-store sales are weakening, the stock is up an impressive 30% year-to-date. With second-quarter earnings due out Thursday, I can't stomach holding this stock, especially since the April quarter raised several red flags. For instance, even though first-quarter revenue were up 13% year over year, it was also clear the rising costs of protein had taken a toll on the company's margins. That food costs were 33% of Chipotle's revenue is cause for indigestion. The way I see it, as long as food costs remain at such a high percentage of revenue, this will continue to add pressure on management to raise prices - there's no way around it. And investors will demand it.
Not only are investors dismissing Chipotle's dismal comp situation, but the Street is also ignoring weakening profitability. Investors are discounting that restaurant level operating margin was 26.3%, falling 110 basis points year over year. Here again, this is where the rising costs of beef and chicken has begun to take its toll. Plus, this was the second consecutive quarter of margin erosion, following a 150-basis-point decline in the fourth quarter. With food costs still on the rise, I don't believe management can avoid raising prices, even though I don't believe they should until the comp situation levels off. The Street is also forgetting the company plans to open 165 to 180 new restaurants this year. Something's not adding up -- food costs are on the rise, same-store sales are decreasing, margins are under pressure, yet management believes it's in the company's best interest to take on additional capital expenditures to open as much as 180 new stores. It would seem to make more sense to first bring the current locations up to operational standards. I think I'm missing something. Follow @saintssense This article was written by an independent contributor, separate from TheStreet's regular news coverage.