gjangal Posted January 6, 2016 Share Posted January 6, 2016 Dec monthly comp sales down 30% is worrisome. IMO worth waiting to see if it recovers. Valuation wise it currently is trading at the lowest pe multiple in 5 years. But as always it's a bet on the future, if they overcome this problem and can keep growing at 15% eps for some time, it can be a reasonable rate of return from here on Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted January 6, 2016 Share Posted January 6, 2016 Dec monthly comp sales down 30% is worrisome. IMO worth waiting to see if it recovers. Valuation wise it currently is trading at the lowest pe multiple in 5 years. But as always it's a bet on the future, if they overcome this problem and can keep growing at 15% eps for some time, it can be a reasonable rate of return from here on Many restaurants have had food issues like this in the past. Clearly it's not a problem with the entire company since the outbreaks were localized. The entire company WILL benefit from greater scrutiny and health practices in the future and people who weren't near any of the affected areas will very quickly forget about this like they have for any other restaurant chain. In general, I think the long-term prospects of the company are still intact. It's just questionable to me that this is the best use of my capital if I think there is a high likelihood that there will be a bunch of other companies on sale in the near future too. Link to comment Share on other sites More sharing options...
TorontoRaptorsFan Posted January 7, 2016 Author Share Posted January 7, 2016 During the Christmas holidays I was in the U.S. I made sure to eat at least one meal at Chipotle. There was still a lineup out the door, people were happy eating their food, and business continued as usual... A crisis like this allows for excellent investment opportunities. Chipotle is probably the safest place in America to eat nowadays. I'm confident they're even more stringent with their food prep policies. They're definitely not shy with explaining the e coli/norovirus outbreaks and the steps they've implemented to ensure their food remains safe to eat. https://www.chipotle.com/food-safety This company still has a long way to grow before they reach market saturation. They're not a one trick pony. Almost any new restaurant startup tries to be the next "Chipotle" They're currently buying back stock, store comps will be weakened for several quarters, will eventually recover, and you'll continue to see more Chipotle, Shophouse, and Pizzeria Locale locations open up. Good companies will eventually face a crisis, the ones who wisely manage them end up becoming great. When I look at the investing landscape none of us can predict what 2016 will bring. But I do know this...the lineups will continue to be long at Chipotle because they make great meals for reasonable prices. Link to comment Share on other sites More sharing options...
JayGatsby Posted January 7, 2016 Share Posted January 7, 2016 I'm surprised that no one has mentioned this amazing Bloomberg article regarding Chipotle http://www.bloomberg.com/features/2015-chipotle-food-safety-crisis/ I was disappointed, but not surprised to learn, that most of the meat came from industrial prep centers. The issue with Chipotle's brand is that it has this warm fuzzy non-industrial message, at least from a sourcing and farming perspective. At first, I was surprised that the crisis happens in regions rather than individual restaurants. Now this all makes sense. If a specific store made all the meals, it is likely that the crisis can be traced back to a specific store. I was puzzled by why there were regionally closings rather than individual stores. Given that some of the meat is braised at regional prep centers, this makes a lot more sense. As the crisis continues to linger, the "sausage making" aspect of Chipotle's food prep will be unfolded. Even though the company may source locally and use organic meats etc, people will likely be turned off that there are giant industrial pots making their Carnitas. The recent issues have clearly taken a significant amount of the luster off their brand, at least temporarily, but I look at it a bit differently. Chipotle's primary competitive set is fast food in the $5 - $12 a meal range. For that price range they have limitations, but at the end of the day they don't have to be perfect they just have to be better than the alternative. It's been a long process for Chipotle to develop their supply chain and obviously they have more work to do, but that supply chain becomes a pretty deep moat that is difficult for others to develop. They can then leverage this for new concepts. No idea what that moat is worth though... ultimately I think most people are simply concerned with flavor/(price + calories). Link to comment Share on other sites More sharing options...
TorontoRaptorsFan Posted January 7, 2016 Author Share Posted January 7, 2016 I'm surprised that no one has mentioned this amazing Bloomberg article regarding Chipotle http://www.bloomberg.com/features/2015-chipotle-food-safety-crisis/ I was disappointed, but not surprised to learn, that most of the meat came from industrial prep centers. The issue with Chipotle's brand is that it has this warm fuzzy non-industrial message, at least from a sourcing and farming perspective. At first, I was surprised that the crisis happens in regions rather than individual restaurants. Now this all makes sense. If a specific store made all the meals, it is likely that the crisis can be traced back to a specific store. I was puzzled by why there were regionally closings rather than individual stores. Given that some of the meat is braised at regional prep centers, this makes a lot more sense. As the crisis continues to linger, the "sausage making" aspect of Chipotle's food prep will be unfolded. Even though the company may source locally and use organic meats etc, people will likely be turned off that there are giant industrial pots making their Carnitas. The recent issues have clearly taken a significant amount of the luster off their brand, at least temporarily, but I look at it a bit differently. Chipotle's primary competitive set is fast food in the $5 - $12 a meal range. For that price range they have limitations, but at the end of the day they don't have to be perfect they just have to be better than the alternative. It's been a long process for Chipotle to develop their supply chain and obviously they have more work to do, but that supply chain becomes a pretty deep moat that is difficult for others to develop. They can then leverage this for new concepts. No idea what that moat is worth though... ultimately I think most people are simply concerned with flavor/(price + calories). If anyone lives in the Mississauga area check out the Square One food court. The only one that consistently has a long lineup is Chipotle. Chipotle understands their clients are willing to pay a slight premium for a tastier and healthier product. Unlike most fast casual chains they've consistently been immune with price hikes affecting their price elasticity. Link to comment Share on other sites More sharing options...
JayGatsby Posted January 7, 2016 Share Posted January 7, 2016 Let's say for argument's sake that all growth plateaued and you were left with $1B of EBITDA, $100M of capex, and $540M of cash after taxes? If you felt pretty good that that was a true stream of cash flow a 5% yield would put you at ~$11B. Add on $1B of cash and you're at $12B compared to the current market cap of $14B. So the real risk at the current valuation is really that you think same-store revenue will suffer long-term declines based on either the the e coli issue or something else. If they have meaningful growth left that's upside. If anyone lives in the Mississauga area check out the Square One food court. The only one that consistently has a long lineup is Chipotle. Chipotle understands their clients are willing to pay a slight premium for a tastier and healthier product. Unlike most fast casual chains they've consistently been immune with price hikes affecting their price elasticity. They're always called premium price, but in Denver a fully loaded chicken burrito is $6.50 before tax. I haven't been in a long time, but the internet tells me a Big Mac + Fries is $5.70. I guess the difference is McD will throw in the drink for another 50c or so. I'll let you know when I'm in the area and we can get a burrito ;) Link to comment Share on other sites More sharing options...
ZenaidaMacroura Posted January 7, 2016 Share Posted January 7, 2016 "I don't own shares, but have you ever done the numbers on the sort of returns on its capital Chipotle earns from opening a new restaurant? When you run the numbers, it's good enough that the high P/E looks like it could be perfectly reasonable." Sort of going off on a tangent but I'm assuming that the returns on capital partly stems from how fast/efficiently they can deal with the volume of customers that come in thru the door? (haven't looked at CMG seriously since 2011 -it was for a business school valuation exercise and our class decided CMG was a short :-[) Is it possible that CMG enjoys a "lucky" advantage just because the type of cuisine they serve just happens to lend itself to the fastest volume/turnover? Noodles, Pizza, Sushi or [insert popular fare] just can't compete in terms of serving a customized (you get to pick what's in your burrito) offering as fast? http://brooklyninvestor.blogspot.com/2015/01/shake-shack-inc-shak.html I wonder if wrap places like Salata will eventually mount a challenge? They don't seem to get people in/out as fast though for some reason... And subway seems like an inferior choice to most consumers (I'd pick Chiptole every single time). Link to comment Share on other sites More sharing options...
TorontoRaptorsFan Posted January 13, 2016 Author Share Posted January 13, 2016 Opinion: It’s safe to eat Chipotle burritos — and buy some stock http://www.marketwatch.com/story/its-safe-to-eat-chipotle-burritos-and-buy-some-stock-2016-01-13 Link to comment Share on other sites More sharing options...
TorontoRaptorsFan Posted January 13, 2016 Author Share Posted January 13, 2016 "I don't own shares, but have you ever done the numbers on the sort of returns on its capital Chipotle earns from opening a new restaurant? When you run the numbers, it's good enough that the high P/E looks like it could be perfectly reasonable." Sort of going off on a tangent but I'm assuming that the returns on capital partly stems from how fast/efficiently they can deal with the volume of customers that come in thru the door? (haven't looked at CMG seriously since 2011 -it was for a business school valuation exercise and our class decided CMG was a short :-[) Is it possible that CMG enjoys a "lucky" advantage just because the type of cuisine they serve just happens to lend itself to the fastest volume/turnover? Noodles, Pizza, Sushi or [insert popular fare] just can't compete in terms of serving a customized (you get to pick what's in your burrito) offering as fast? http://brooklyninvestor.blogspot.com/2015/01/shake-shack-inc-shak.html I wonder if wrap places like Salata will eventually mount a challenge? They don't seem to get people in/out as fast though for some reason... And subway seems like an inferior choice to most consumers (I'd pick Chiptole every single time). If you take a look at Chipotle's other food chains: Shophouse and Pizzeria Locale they've applied exactly the same fast method of food selection as Chipotle. Shophouse: http://shophousekitchen.com/food?format=html Pizzeria Locale - pick toppings & pizza is ready to eat in 2 minutes Link to comment Share on other sites More sharing options...
eclecticvalue Posted January 14, 2016 Share Posted January 14, 2016 Investment thesis on Chipotle being a short https://www.hvst.com/posts/55611-meet-the-new-lower-margin-lower-quality-cmg-cmg-short-idea. My point is I would wait after the next quarter and buy into it because I think it could go lower. Link to comment Share on other sites More sharing options...
TorontoRaptorsFan Posted January 14, 2016 Author Share Posted January 14, 2016 You should have taken my advice and bought it at $400. You would have had a nice 13% return this week! ;) Chipotle has been taking the right steps to get this serious issue rectified. This stock is only going up... Link to comment Share on other sites More sharing options...
feynmanresearch Posted January 31, 2016 Share Posted January 31, 2016 Our short thesis on CMG:http://seekingalpha.com/article/3850656-chipotle-fundamentals-suggest-even-stronger-downside-potential Link to comment Share on other sites More sharing options...
Guest Grey512 Posted February 1, 2016 Share Posted February 1, 2016 Thanks. Decent piece. Disclosure: Short, and carrying a loss. Link to comment Share on other sites More sharing options...
Picasso Posted February 1, 2016 Share Posted February 1, 2016 Thought it was interesting to follow the chipotle subreddit. Lots of commentary from employees saying traffic down over 50% and not recovering. Latest commentary seems to imply some improvement. Link to comment Share on other sites More sharing options...
eclecticvalue Posted February 1, 2016 Share Posted February 1, 2016 Give it a couple more quarters. I can tell you in Boston, the locations aren't doing too well and only 1/3 of the customers are there. My burning question is How are the other Chipotle locations doing across the USA? I would like to hear back from everyone on this board about it. Link to comment Share on other sites More sharing options...
TorontoRaptorsFan Posted February 1, 2016 Author Share Posted February 1, 2016 Chipotle management has mentioned several times they know the E. Coli issue will affect them for several quarters. The steps they've implemented to ensure that food safety is paramount for their customers well-being has been methodical and aggressive with its implementation. I have no doubt that this has only made Chipotle an enticing investment for anyone who is looking to make an excellent return on their capital. Link to comment Share on other sites More sharing options...
TorontoRaptorsFan Posted February 1, 2016 Author Share Posted February 1, 2016 CDC expected to declare end to Chipotle's E.coli outbreak as soon as Monday http://www.reuters.com/article/us-chipotle-ecoli-wsj-idUSKCN0VA193 Link to comment Share on other sites More sharing options...
bci23 Posted February 10, 2016 Share Posted February 10, 2016 there was a line during lunch hour at the chipotle near me today for the first time in months. I was getting used to there never being a line... Link to comment Share on other sites More sharing options...
krazeenyc Posted February 10, 2016 Share Posted February 10, 2016 there was a line during lunch hour at the chipotle near me today for the first time in months. I was getting used to there never being a line... I expect the free burritos has a lot to do with that. Link to comment Share on other sites More sharing options...
bci23 Posted February 10, 2016 Share Posted February 10, 2016 there was a line during lunch hour at the chipotle near me today for the first time in months. I was getting used to there never being a line... I expect the free burritos has a lot to do with that. Ah yeah that explains it. Also, i think the decline in sales is really screwing up CMGs labor structure in the restaurants. One less person working the line makes the throughput decline substantially. If there are 10 people ahead of me in line, its going to take 10 minutes to get through that line now whereas before there could be 20 people ahead of me and that would take 5 minutes. Link to comment Share on other sites More sharing options...
sleepydragon Posted February 10, 2016 Share Posted February 10, 2016 i went to eat there today. Yes, the line is shorter, and they got a new manager. Used to be a Mexican manager who doesnt speak english when i tried to complain last time. Now, the manager is a white guy who looks like harrison ford. Anyway, i asked for steak, and i noticed the steak is still medium rare, pinkish color. So i said : the meat is not even well cooked. the manager says: it's cooked to medium rare, 128 degree, and asked me if i want well cooked instead. I said that's fine. I guess i was probabbly over concerned. As long as the steak has no sign of blood, it should be ok? It does seem they are getting new, well trained employees now. Before, i had a lot of problem with them, messed up my orders a few times. Link to comment Share on other sites More sharing options...
TwoCitiesCapital Posted February 10, 2016 Share Posted February 10, 2016 i went to eat there today. Yes, the line is shorter, and they got a new manager. Used to be a Mexican manager who doesnt speak english when i tried to complain last time. Now, the manager is a white guy who looks like harrison ford. Anyway, i asked for steak, and i noticed the steak is still medium rare, pinkish color. So i said : the meat is not even well cooked. the manager says: it's cooked to medium rare, 128 degree, and asked me if i want well cooked instead. I said that's fine. I guess i was probabbly over concerned. As long as the steak has no sign of blood, it should be ok? It does seem they are getting new, well trained employees now. Before, i had a lot of problem with them, messed up my orders a few times. You eat your steak well-done? What kind of monster are you! Link to comment Share on other sites More sharing options...
sleepydragon Posted February 10, 2016 Share Posted February 10, 2016 i went to eat there today. Yes, the line is shorter, and they got a new manager. Used to be a Mexican manager who doesnt speak english when i tried to complain last time. Now, the manager is a white guy who looks like harrison ford. Anyway, i asked for steak, and i noticed the steak is still medium rare, pinkish color. So i said : the meat is not even well cooked. the manager says: it's cooked to medium rare, 128 degree, and asked me if i want well cooked instead. I said that's fine. I guess i was probabbly over concerned. As long as the steak has no sign of blood, it should be ok? It does seem they are getting new, well trained employees now. Before, i had a lot of problem with them, messed up my orders a few times. You eat your steak well-done? What kind of monster are you! I guess i was too picky on them :) The manager was quick, reciting out the exact temperature. Long CMG :) Link to comment Share on other sites More sharing options...
TorontoRaptorsFan Posted February 10, 2016 Author Share Posted February 10, 2016 I guess i was too picky on them :) The manager was quick, reciting out the exact temperature. Long CMG :) Welcome to the Club! :D Link to comment Share on other sites More sharing options...
TorontoRaptorsFan Posted March 8, 2016 Author Share Posted March 8, 2016 Chipotle keeps on climbing higher and higher since I highly recommended it when it was at $400! On to $600 we go... Link to comment Share on other sites More sharing options...
Recommended Posts
Create an account or sign in to comment
You need to be a member in order to leave a comment
Create an account
Sign up for a new account in our community. It's easy!
Register a new accountSign in
Already have an account? Sign in here.
Sign In Now