Chipotle (CMG) stock above $650 after earnings report. Can it last?
On Monday, Chipotle (CMG) announced a second quarter revenue of $1.05 billion, exceeding expectations. The announcement sent the stock price soaring 11 percent to $660 a share. Is Chipotle the fast food chain to beat?
What a year it has been for Chipotle.
The Mexican fast-casual chain earned $1.05 billion in revenue for the second quarter of 2014. The fast-food giant saw store sales rise 28.6 percent compared to the same time last year. The main reason behind the increased sales– people just love the burrito, Chipotle says.
“We’re pleased that we continued to drive excellent results in the second quarter, including one of our strongest sales comps as a public company," said Steve Ells, Founder, Chairman and co-CEO of Chipotle. "These extraordinary results are made possible by our special food culture, innovative people culture, and strong business model that are not only creating significant shareholder value, but also helping us realize our vision to change the way people think about and eat fast food.”
Investors jumped at the news, sending Chipotle stock to $660 a share on Tuesday. That is the highest Chipotle stock has ever been. Seems like a lot for a fast-food restaurant, no?
Chipotle stock is far and away the most expensive compared to shares of any other fast food company. Panera Bread (PNRA) is in second at $145 a share. McDonald's trades for $96 per share. Chipotle also has the second highest market value for its outstanding shares among food chains, behind Yum! Brands, parent company of KFC.
Peter Cohan, adjunct professor at Babson College, said investors saw that Chipotle beat its expectations and jumped to buy the stock, sending the price up. He added that people are recognizing that Chipotle is a major force in the fast-food industry.
“[Chipotle] is growing faster and is much more profitable than its competitors," Cohan said. "It has about $3.4 billion in sales and about a 10 percent profit margin, which is good. Its sales are growing at 24 percent, compared to 3 percent average for the industry.”
Though Chipotle is doing extremely well as a company, Cohan thinks the stock is overvalued at $660 a share. The current price compared to the potential for growth is too high, indicating that the price is too high.
"It's overvalued," Cohan said." The stock price could continue to increase, but the risk of it going down is really high."
In April, Chipotle hit a low for the year at $476 a share. Since then, the stock price has risen sharply. But, overall, the stock is up more than 10 percent on the year. Clearly, it's a good time at Chipotle.
Chipotle had a great second quarter. The $1.05 billion in revenue is far greater than the $990 million that was expected, according to Wall Street Pit.
More good news: A price increase hasn't turned customers away. In the spring, because of rising beef, avocado and dairy costs, Chipotle raised its prices an average of 6 percent. But people just kept coming.
"The amount of sales from stores open at least a year, known as same-store sales, was up 17.3 percent.Rarely do you see numbers this high, "It's the best traffic number in the industry," Sterne Agee analyst Lynne Collier told Investor's Business Daily."
Chipotle currently has almost 17,000 stores. This year the company has already opened 45 stores and is planning to build another 135 to 150.