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Chipotle Mexican Grill: From Overvalued to Efficiently Priced

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Back in February, Minyanville's Ron Thomas made the case for the stock price, which has been reached today.

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Chipotle, like Panera Bread (NASDAQ:PNRA), the other giant of fast casual dining, was a great restaurant idea that came at the right time. While the consumer was getting to appreciate more varied upscale food than burgers, he was being squeezed by very little increase in real income in the late 1990s and early 2000s. Before the 2008 recession, you could move up from quick service restaurants to fast casual, and after 2008, you could move down to fast casual from casual dining.

But the competitive landscape of the fast casual segment is really not normal and has to change. Panera and Chipotle are the giants of the industry segment. That makes no sense. Did customers suddenly become enamored of just Mexican and upscale subs and panini sandwiches? I believe that the 2008 capital markets meltdown, coupled with the hunkered down consumer, has made it very tough to get capital for most new restaurant ideas. Just looking at the ranks of quick service restaurants and casual diners that flank the fast casual segment, you have to believe that there will be lots of other varied food concepts coming and that maybe three or four will be big hits with consumers.

The implication is that the present profitability of Chipotle's units and the numbers used to figure potential saturation and EPS growth rates are too optimistic to use in valuing the stock, or that huge competitive pressure has to be put into the models for later years' results.

No positions in stocks mentioned.
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