One of Wall Street's biggest winners of the day is Chipotle Mexican Grill, a restaurant chain company whose shares have climbed 6.8% to a price of $33.32 -- 22.84% below its average analyst target price of $43.18.
The average analyst rating for the stock is buy. CMG may have outstripped the S&P 500 index by 6.0% so far today, but it has lagged behind the index by 61.6% over the last year, returning -50.3%.
Chipotle Mexican Grill, Inc., together with its subsidiaries, owns and operates Chipotle Mexican Grill restaurants. The company is a consumer cyclical company, whose sales and revenues correlate with periods of economic expansion and contraction. The reason behind this is that when the economy is growing, the average consumer has more money to spend on the discretionary (non necessary) products that cyclical consumer companies tend to offer. Consumer cyclical stocks may offer more growth potential than non-cyclical or defensive stocks, but at the expense of higher volatility.
Chipotle Mexican Grill's trailing 12 month P/E ratio is 29.5, based on its trailing EPS of $1.13. The company has a forward P/E ratio of 27.3 according to its forward EPS of $1.31 -- which is an estimate of what its earnings will look like in the next quarter.
As of the third quarter of 2024, the average Price to Earnings (P/E) ratio for US consumer discretionary companies is 20.93, and the S&P 500 has an average of 29.3. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
Another key to assessing a company's health is to look at its free cash flow, which is calculated on the basis of its total cash flow from operating activities minus its capital expenditures. Capital expenditures are the costs of maintaining fixed assets such as land, buildings, and equipment. From Chipotle Mexican Grill's last four annual reports, we are able to obtain the following rundown of its free cash flow:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2024 | 2,105,076 | 593,603 | 1,511,473 | 23.61 |
| 2023 | 1,783,477 | 560,731 | 1,222,746 | 44.87 |
| 2022 | 1,323,179 | 479,164 | 844,015 | 0.53 |
| 2021 | 1,282,081 | 442,475 | 839,606 | 189.03 |
| 2020 | 663,847 | 373,352 | 290,495 | -25.08 |
| 2019 | 721,632 | 333,912 | 387,720 |
- Average free cash flow: $849.34 Million
- Average free cash flown growth rate: 34.8 %
- Coefficient of variability (the lower the better): 0.0 %
Free cash flow represents the amount of money that is available for reinvesting in the business, or for paying out to investors in the form of a dividend. With a positive cash flow as of the last fiscal year, CMG is in a position to do either -- which can encourage more investors to place their capital in the company.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts.
Chipotle Mexican Grill's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 13, so the company's assets may be overvalued compared to the average P/B ratio of the Consumer Discretionary sector, which stands at 2.93 as of the third quarter of 2024.
With a higher P/E ratio than its sector average, a higher than Average P/B Ratio, and generally positive cash flows with an upwards trend, we can conclude that Chipotle Mexican Grill is probably fairly valued at current prices. The stock presents strong growth indicators because of its strong operating margins with a positive growth rate, and an inflated PEG ratio.
