CMG thoughts

I don’t have a position in Chipotle but I like to follow discussions about stocks to test how they compare to my own metrics.

It’s too bad I haven’t done it for the restaurant companies I own (Starbucks, Buffalo Wild Wings & Chipotle) as well as McDonalds. This would provide a nice comparison in addition to the company-specific stuff. Thanks for pointing out the obvious!

I started with Chipotle. Here are historical data back to 2010:

Qtr	Sales	TTM	Shrs*	P/S
Mar-10	410		31,814	
Jun-10	467		31,802	
Sep-10	477		31,629	
Dec-10	483	1,836	31,702	3.7
Mar-11	509	1,936	31,717	4.5
Jun-11	572	2,040	31,761	4.8
Sep-11	592	2,155	31,832	4.5
Dec-11	597	2,270	31,784	4.7
Mar-12	641	2,401	31,846	5.5
Jun-12	691	2,520	31,951	4.8
Sep-12	701	2,629	31,846	3.8
Dec-12	699	2,731	31,486	3.4
Mar-13	727	2,817	31,229	3.6
Jun-13	817	2,943	31,176	3.9
Sep-13	827	3,070	31,296	4.4
Dec-13	844	3,215	31,425	5.2
Mar-14	904	3,392	31,486	5.3
Jun-14	1,050	3,625	31,474	5.1
Sep-14	1,084	3,883	31,547	5.4
Dec-14	1,070	4,108	31,542	5.3
Mar-15	1,089	4,293	31,592	4.8
Jun-15	1,198	4,441	31,526	4.3
Sep-15	1,217	4,574	31,548	5.0
Dec-15	998	4,501	31,312	3.3
Mar-16	834	4,247	29,893	3.3
Jun-16	998	4,047	29,340	2.9
Sep-16	1,037	3,867	29,171	3.2
**quarterly weighted average*
I also used the quarter closing price.

Before the crisis, the ratio was consistently around 5. If it can consistently get back to 4, especially with the expected improvement in comps as well as store growth, there could be some significant upside. Now I need to create the same data for my other companies.



Thanks for pointing out the obvious!

My pleasure!

Denny Schlesinger

If this board is interested in Chipotle, I can share a lot more analysis - I just haven’t seen sustained interest. Saul?

I wouldn’t be opposed to this as Chipotle is my 3rd largest position (it used to be the largest by a big margin), and I have some analyses that I can share as well.

I’ll admit that I’ve considered lightening my position because my conviction no longer quite matches its size.

I’ve considered this as well. But at the current price, especially given the future prospects, I’ve decided to hold. One question I asked myself is this: Is the investment today better or worse than it was back in October, 2015? With all the negativity, one may think that it is worse today. But if one believes that this negativity will take yet a few more years to disappear (maybe it won’t), one could argue that an investment at today’s price is better.



Eyelise17 and Matt, thanks for your kind words.

Randy and Denny, thanks for interesting points that may eventually help me take my analysis further.

I’ve been mulling how to appropriately estimate market cap based on factors like restaurant count, restaurant sales, growth in restaurant count, and the like. Certainly comparing to competitors, as Denny did, is useful. If I have something substantive to add based on that kind of analysis, I won’t hold it back.

But - as I indicated - I’ve shared my beliefs about CMG’s future, and I’m not going to repeat those. It doesn’t serve anyone well.

The other issue is that it’s getting close to earnings season, and there is a fair amount of preparatory work I need to do for a handful of companies. The kind of analysis I’ve shared here for INFN and SWKS doesn’t miraculously arise - maybe other people could do it that way, but I can’t. I need some study time, and that has begun. So my “silence” is also an attempt to apportion my time responsibly in order for my prep work to be complete before each company reports. That’s also why I talked about holding off on further 2016 retrospectives until late February.

A quick note, especially for relative novices… I recognize that market cap and PE are mathematically connected. (I know many of you know this, but…) Market cap is share price times number of shares outstanding. PE is share price divided by “earnings” (when one says “earnings”, it is best to be clear about whether you mean GAAP or non-GAAP, and “trailing twelve months” (TTM) or future expectations; we generally do a good job of that here, so I’m just stating it for completeness’ sake). Given fixed earnings (they only change every three months - at least the TTM version), and fixed number of shares outstanding (as with earnings, we only get updates quarterly), market cap and PE move proportionally on a day-to-day basis. So it may seem very odd to some that I’m willing to embrace market cap as an appropriate way of looking at CMG and deny the appropriateness of PE.

Especially on this board, where the 1YPEG is held in such high regard (in essence, PE divided by earnings growth), I want to highlight that PE is not the right measure to use right now for CMG because earnings have been all over the place and will likely continue to be all over the place until traffic (and traffic growth) patterns stabilize. If you look at CMG over the past year or so, market cap has been far more stable than PE, despite their “connection”. This tells me that the market is setting share price by looking at something other than a multiple of earnings. I think that’s the crux of my argument. I might be willing to try and attach a PE to “normalized” earnings, if I could figure out what the heck “normal” means in this case.

Your suggestion that the market is setting share price due to investors anchoring on prior prices and prior growth rates is plausible, but it is not the only possible reason. That said, I’m not going to offer alternatives because anything I offer would be speculation.

All of that said… I like what someone (bullwinkl?) said up-board - something to the effect of “honest disagreement makes markets”. In this context, it tells me that belief-based arguments have a place. I may not be willing to give them a PRIMARY place, but ignoring them isn’t smart either…

I hope this has added to the discussion, and that the board is finding it useful. I know I traveled some already-covered ground, but I tried to state my thoughts and reasoning more clearly than in prior posts, in those cases. I just hope it helped.

Thanks and best wishes,
TMFDatabaseBob (long: CMG)
See my holdings here:
Peace on Earth


The McDonald’s Price to Sales does not sound right to me, too high. I wonder what they count as revenue, the price of McNuggets or franchise fees? P/S of 4 makes more sense based on franchise fees.

Denny Schlesinger

I did mention “bubble” in my previous post.

Then you probably shouldn’t have mentioned QCOM as an example. How do you know that CMG wasn’t in a bubble in 2015, and like QCOM, may never break its ATH again? Or maybe it’ll be like Amazon and it’ll take about 10 years to get back to that level.

…same management, same product, same economy.

Uh, no to all 3:

  1. Management: One of the two CEOs is gone. The head of marketing admitted in court to buying cocaine, and being addicted. Besides, management has shown they were and remain ill-equipped to handle this crises.

  2. Product: There are many many reports that the taste and freshness are different. CMG use to tout local processing, but now more and more is done in big central kitchens and literally bagged up and shipped to stores. People used to eat at CMG because they considered it healthier. Now it’s just a Mexican-ish fast food place that’s not cheap.

  3. Economy: Especially for restaurants, there are signs that the economy is changing. The remaining CEO has warned of having to raise prices due to needing to pay workers more.

Everyone judges risk differently. To me the risk is that those that are propping CMG up because they think the good days are coming back will eventually give up. That may happen on its own, or it may be accelerated by a market event/condition. But, for me, when I look at the chances of CMG getting its momo back versus failing or just mucking along, the risk is too great. There are other places with much better growth prospects with less risk for my money.

Ticker P/S
CMG 3.07
SBUX 3.95
MCD 4.05

Ok but CMG is not McDonald’s. McDonald’s has like 20% net margin. Even in its hey day (2014) CMG’s barely touched 10%.

SBUX has better margins too (14% maybe), plus more growth than MCD.

And I don’t think either of them is cheap either.

But you’re comparing Chipotle (which means “a smoked and usually dried jalapeño pepper”) with two of the most iconic brands of our time.



<<<But you’re comparing Chipotle (which means “a smoked and usually dried jalapeño pepper”) with two of the most iconic brands of our time.>>>

Yes, but Starbucks was not always “Starbucks” and it has been a very long time since McDonalds became “McDonalds”.

The last time Starbucks or McDonalds had extraordinary returns with double or quadruples or the like, were when the shares crashed. Starbucks went down to $4 a share if I recall. People were saying it was still expensive, that its Chinese expansion was doomed to failure, that McDonalds was eating its coffee business, etc.

Starbucks has done extraordinarily well since then.

You don’t make that type of return without investing with some anxiety. No way. No how. It is always a risk.

No, Chipotle is not Coke, not yet anyways, and maybe never. But it is times like this when extraordinary returns become possible. But yes, it does take a risk. It is up to each investor to figure out if they have the confidence in the business or not to want to ride it out and invest in the business knowing the business may never recover.

Nuff said.



Ok but CMG is not McDonald’s.

You miss the central point of my post. As I said, I don’t have any interest in Chipotle, dried or not. My point is that there are times when the usual metrics like P/E don’t make sense and we should use other, less common valuation metrics like price to sales.

The reason I picked SBUX is because lots of people think that Chipotle is “iconic” or special in some way and I picked McDonald’s for the opposite reason, as the cheap fast food joint.

You are, of course, free to disagree.

Denny Schlesinger


Then what I have seen time and time and time and time and time again is that the company will far more likely than not rebound to where it was and to even greater heights long term.

Could not agree more. It’s just a matter of time horizon. All companies and their stock price go through troubled periods, and it’s been my experience, fwiw,with dozens of companies to just ignore the details of the moment and let it rebound in time.



Could not agree more. It’s just a matter of time horizon. All companies and their stock price go through troubled periods, and it’s been my experience, fwiw,with dozens of companies to just ignore the details of the moment and let it rebound in time.

It seems to me that there are two rational ways to try and predict the future for a company.

  1. Consider the long term and short term - this is what Saul does, and what I try to do.

e.g. SHOP - In the long term I have no idea how big they’ll get, but in the short term I expect (at least for the next few years) that they’ll keep doing what they’ve been doing – growing at a torrid pace, yet not completely ignoring profitablity (which for now just means keeping the losses small as they reinvest relentlessly).

  1. Consider the long term and not worry about the short term

e.g SKX - If you think they’ll be the size of ADIDAS or NKE or even UA some day (well, some day in the next decade or two), you need not concern yourself with the short term. Just buy and wait, and if they get to a market cap of 25B some day, you’ll most likely have beaten the market.

This is why I asked the market cap question, and why Bob wisely keyed in on it. CMG was already over 20B before this debacle. They’re of course around half now, which is still like PNRA + JACK + WEN + SONC combined. None of these have margins anywhere close to a MCD, by the way. About half.

It’s hard to find exact comparisons for CMG. Maybe PNRA, JACK, WEN and SONC don’t cut it. But if your investment thesis rests on CMG becoming the next MCD, you may need to rethink, because at least thus far, MCD is one of a kind.

So be careful about what you’re inferring for the future. Will CMG truly break the mold and be as profitable as MCD? Note that even SBUX hasn’t been able to achieve those margins, and they have an addictive, high-margin, en vogue product and massive cult appeal. And even MCD’s margins seem to have come down in recent years! Food is a tough business.

Will CMG get back to rapid growth – maybe 20% again – until 10 to 20 years from now they have 3 or 4 times as many restaurants as they have today? No one in this thread had said that, and I don’t think it’s likely, but…

If you believe the future will be rosy enough in CMG long term, maybe a buy and hold attitude makes sense. Just realize your assumptions and how they might be incredibly optimistic.



I think it will be interesting to see where CMG’s business is a couple of years from now. It also could be quite instructive as to what conclusions we should draw from good companies going through hard times.


Here is the problem with the discussion on this thread. You can crunch all the number you want, but there is so much more to the future propects of CMG then crunching numbers. You are not in the restaurant business so you aren’t not looking at a complete picture.

  1. Labor costs going up. Yes minimum wage is going up around the country.
  2. Healthcare costs keep rising and I don’t see them going down or even stabilizing.
  3. Commercial rents are going up as there are more and more fast casual chains
    entering the market. Pizza, burgers, all competing for the same spaces with CMG.
  4. Everyone’s become a foodie. Customers 10 years ago had much more limited palates
    they do today, you can thank the food networks for that and the explosion of
    chef driven concepts. The foods gotten better. Hell I was one of the first in my
    places to serve Poke, now it’s becoming mainstream as places are opening up
    Incredibly fast in the markets I’m in from Cali to Arizona.
  5. Food costs are creeping up as the economy improves and competition heats up.
  6. Speaking of competition, with so many choices to work at, good labor is harder to
    find and keep so in order to hold onto good employees you have to pay a higher wage
    and have additional incentives like healthcare.

I sold CMG right when the ecoli News first broke and I gave my reasons then on the SA
boards. CMGs issues are no longer just the recovery from the ecoli scare. They are deeper then that. CMG had its day in the sun much like WFM, another stock I went bearish on over two years ago. Still very good companies, but their competitive advantages disappeared as competition grew.

I won’t even get into the food and safety issues of CMG, which has in my opinion changed the quality and taste of their food. I’ll give you my reasons possibly in another post. Let’s just say I haven’t eaten there in almost a year and I used to go all the time.

Fast casual, and the restaurant industry as a whole has reached an oversaturated level
and it’s going to be harder and harder to squeeze a profit going forward.
I speak from experience, even as I am about to break ground on my 5th full service restaurant.
Not to even mention all the new companies now delivering great meals to your door like
Blue Apron and other cropping up all the time looking to grab market share by keeping people in their homes.
Too many players in a saturated market with rising costs fighting to keep their growth going for their shareholders is not a heathy recipe.

You can trade CMG, but like WFM, I see it dead in the water for a very long time.



Great post Chris!

My dad was in the hotel and restaurant business so I learned something but the trade. Your post is missing the magic word “commodity.” Food is a commodity and just about everyone can cook. You have to offer something that draws the customers away from competitors. It can be location, price, brand, style, convenience, quality, the “in crowd,” entertainment or a combination.

Chipotle had a aura about it just like Whole Foods and it disappeared over the e-coli breakout. Everything you mention applies to all eateries and, in that sense, I would not worry about then in reference to Chipotle. I would concentrate on their own particular problems, the loss of trust and, from what I have read, the loss of quality or taste that made Chipotle special. Their growth is predicated on new concepts which, for them, are as yet untried. In other words, the problem is not risk but uncertainty for which we have no predictive abilities.

Denny Schlesinger


Hi Denny

CMG has already scrapped Shophouse. I went a few tims here in Santa Monica, was ok.
As for pizza, there are so many other chains now looking for space and expansion.
Blaze Pizza is now the talk. Sauce in AZ, which was just bought from Sam Fox Concepts is beginning its expansion. Many others.

Again, a real concern is how do you continue to grow and at what cost. There is only so much good retail space for so many more players, and I’m not just talking the older fast food places like Taco Bell, I’m talking the new players like Shake Shack.

As for taste, food quality. I notice the difference. I can give an educated guess to what’s happened. Part of the problem, when the health dept comes in and slaps you on the wrist because frankly the ecoli scare happened under their watch as well, many things change and you as a company have to comply or you will be shut down, and the last thing CMG needs is any negative news. So I think what’s happened among other things is that the health dept made CMG turn the heat up on their steam tables. Keeping food warm as opposed to it continuing to cook on a steam table is a fine balancing act. I can tell you that what is required by the health dept destroys by overlooking food, so most places turn down their steam tables. I’m guessing that from my own experience at CMG, tasting over cooked, slightly rubbery chicken a couple of times, that this is one of their probelems now. Anything on that hot line is continuing to cook in all those little metal inserts unless it is served within a few minutes. With less customers food sits longer, and the longer it sits in there, veggies, protein, it gets either mushy or rubbery.



As for taste, food quality. I notice the difference. I can give an educated guess to what’s happened.

If you haven’t read this, it’s still worth a read:

…fresh oregano would be replaced with a dried alternative. On January 11, the company introduced blanching of produce: Chipotle’s lemons, limes, onions, avocados, and jalapeños would now be plopped into 185-degree water for five seconds—a so-called kill step that eliminates pathogens. By January 16, bags of the precut lettuce and bell peppers, now chopped at central kitchens with samples tested in laboratories, arrived at all Chipotle restaurants.

Internally, however, Ells and Moran soon began doubting the very food-safety practices they were touting, namely the high-resolution testing. They tell me that the taste of the lettuce and bell peppers suffered markedly due to being prepared off-site. “The quality wasn’t what it was,” Moran says. “Customers thought we went to iceberg lettuce. That broke our hearts.”


Central kitchens took over precooking steak in March. It would now be reheated at the restaurants. …

“People took pride in cutting bell peppers and lettuce. When we took that away, morale started getting lower.” (Hartung, the CFO, tells me that the company did not reduce its hours as much as it could have given how steeply same-store sales declined.)

“'What’s the difference between Taco Bell and Chipotle?’ The difference is you pay much less at Taco Bell.”
“It’s not fresh anymore!” says a source familiar with Chipotle’s food-safety program. “Sooner or later someone is going to say, ‘What’s the difference between Taco Bell and Chipotle?’ The difference is you pay much less at Taco Bell. The tomatoes, the lettuce—they’re all coming from the same place. Taco Bell is [precooking] your meat and now Chipotle is too. There is no distinction.”

Chipotle leaders scoff at that notion. As Arnold puts it, “We do share some suppliers with other large restaurant companies. That does not mean we use the same ingredients or cooking methods.”



Some very good strong rebuttals in regard to the underlying business fundamentals going forward. I have to say that I have been persuaded that the rose has come off, that the distinction that made the restaurant different has diminished. CMG, like the most successful brands sells a story and a feeling as much as a superior and distinct product.

Remove the spirit and distinction of the product (which was high quality, fresh, but yet still fast) from the business, you also remove the story and feeling.

That is a tough nut to crack.

I don’t think it is pricing. People will pay a premium price for a premium experience (so all the discounting CMG has done I think is counterproductive). They need fresh back, and they need to figure out a way to do it safely.

That is what the brand is, and it has no connection with its customers if it loses this story and feeling. That is a very material challenge that CMG has yet to overcome.



Chris a JP Morgan analyst mentioned the growing supply of fast casual restaurants in a note downgrading CMG today.

…Despite initiatives including free-burrito coupons, executive changes and new board members, supply has apparently outpaced demand.

JPMorgan estimates that supply is up about 4% for fast casual restaurants while demand has risen just 1%.

“A company focusing on customers and simplifying employee goals can often be met with success, but the key is whether improved operations are met with additional demand in an increasingly competitive restaurant landscape,” Ivankoe said.

Last week, Chipotle guided for a same-store sales decline of 4.8% for the current quarter. The company estimates that sales were down 20.2% in October, 1.4% in November and up 14.7% in December.

The Mexican-style food chain is facing relatively easy year-over-year comparisons. Same-restaurant sales were down 14.6% in the 2015 fourth quarter and 29.7% the following period after numerous cases of E. coli were linked to Chipotle in late 2015.…

Long 1 June Put on CMG

I can give an educated guess to what’s happened. Part of the problem, when the health dept comes in and slaps you on the wrist because frankly the ecoli scare happened under their watch as well, many things change and you as a company have to comply or you will be shut down, and the last thing CMG needs is any negative news.

This is an investing board and the way to take advantage of Chipotle’s woes is to invest in Neogen Corporation (NEOG).


Neogen Corporation, together with its subsidiaries, develops, manufactures, and markets various products and services for food and animal safety worldwide. It operates through two segments, Food Safety and Animal Safety. The Food Safety segment offers diagnostic test kits and complementary products to detect dangerous and/or unintended substances in human food and animal feed, such as foodborne pathogens, spoilage organisms, natural toxins, food allergens, genetic modifications, ruminant by-products, meat speciation, drug and pesticide residues, and general sanitation concerns; and AccuPoint Advanced rapid sanitation test for adenosine triphosphate, a chemical found in living cells. This segment offers its products primarily to food and feed processors, meat and poultry processors, seafood processors, fruit and vegetable producers, grain producers and processors, and dairies; laboratories; producers of pharmaceuticals, cosmetics, veterinary vaccines, and nutraceutical products; and various regulatory agencies. The Animal Safety segment provides pharmaceuticals, rodenticides, disinfectants, vaccines, veterinary instruments, topicals, diagnostic products, and genetic testing services to the animal safety market. This segment?s drug detection immunoassay test kits are used for the detection of abused and therapeutic drugs in farm animals and racing animals; detection of drug residues in meat and meat products; and human forensic toxicology drug screening applications. Its products are also used to maintain sanitary conditions and limit the potential hazards of bacteria, fungi, and viruses. In addition, this segment offers various products for researchers to detect biologically active substances. The company sells its products directly, as well as through distributors and retail chains. Neogen Corporation was founded in 1981 and is headquartered in Lansing, Michigan.

Nice chart:

Growing at 20% powered by safety concerns.

Again, a real concern is how do you continue to grow and at what cost.

When growth slows, and in time it always does, P/E ratio contracts. Some outfits like Apple and Microsoft become cash cows, others just wither away.

Denny Schlesinger


A question.

It seems a bit more civil over on see boards. Is this one of Sauls boards, or group?
I hear his name passed around but I do not see him post, not yet anyway.

I stopped share no thoughts on the SA boards simply because it seems if you are not cheerleading the SA stock picks, you are treated as the enemy. I’ve always lived by the philosophy that you need to understand both sides if you truly want to be successful. This thread seems to represent a healthy discussion that paints a more full picture.

I’ll start posting over here if this is the type of environment you guys have.
Is there a “Saul” group?


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