Friday, September 21, 2007

Chipotle Mexican Grill (CMG)

I have been a huge supporter of Chipotle since taking my first bite of a giant burrito back in 2003. The food is great, the service is fast, and the stores are just flat out busy....all the time.

In my opinion, one way to examine the prospects of a business is to simply go and observe. What is the atmosphere? Who is the target market? How is the food? How is the service? Talk to customers about the product or service offered. Ask them what they like, and what they don't like.

I am a believer in the Warren Buffett philosophy of "buying companies you know and understand." Chipotle Mexican Grill (CMG) is one of those companies. I know what they offer customers, and I understand how they make money. However, even in this case, some information about the company will never be known, which creates some amount of risk when buying individual stocks.

A quick look at company financials reveals a solid business with outstanding growth potential....key word: potential

With a P/E ratio near 62, and a PEG ratio of 2.16, the market continues to "price in" many years of future growth in the stock price today. Earnings are great, while the company has aggressive growth plans that include another 90 locations by the end of 2008.

I bought shares between $49-$52, just after the company's IPO, and selling now doesn't make since because I think there is still a considerable amount of growth potential.

On the other hand, with the recent rate cut and rise in financial markets over the past week, I highly doubt the price will stay at $113 a share when stocks correct a bit. However, I remain bullish on Chipotle long term, refusing to sell my shares because of future growth expectations.

If you don't already own shares, I would wait until they make a small correction.

Recommendation: hold shares of Chipotle Mexican Grill (CMG) long term

I am long Chipotle

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