Is Rising Star Chipotle A Long-Term Investment?

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 |  Includes: CMG, MCD, PNRA, WEN
by: MyPlanIQ

I continue to look for long-term equity investments with a dividend income stream. I have invested in McDonald's (NYSE:MCD) as its long-term performance has been great, it is a dividend aristocrat and I think it has decent growth potential. I have some angst about its product. I have been upbraided not to be emotional but I am definitely uncomfortable with tobacco and MCD is a little on the edge. So when I read a piece by Alyce Lomax of the Motley Fool on why to invest in Chipotle, I was interested.

Formed in 1993, Chipotle provides delicious burritos and other Mexican fare as a fast-food but with a "Food With Integrity" mission. Having a fast food supplier that uses "good food" is attractive to me personally. Strangely, in 1999 Chipotle became a subsidiary of McDonald's but was divested and went public in 2006.

Alyce explains why she would buy and her view of the risks in the article.

My reasons for buying are:

  • I think that healthy fast food is a great combination -- I think that will play increasingly well as time goes by
  • I think that food with integrity has a long way to go and while traditional fast food is well served, this is an interesting and growing niche
  • I think Chipotle can expand internationally and continue to grow their top line

Below is a comparison of other fast food businesses and their returns as context.

Company Revenue, 5-Year CAGR Net Income, 5-Year CAGR Gross Profit, 5-Year CAGR
Chipotle (NYSE:CMG) 22.50% 38.20% 25.10%
McDonald's 5.20% 8.60% 8.80%
Panera (NASDAQ:PNRA) 16.80% 19.60% 17.50%
Wendy's (NASDAQ:WEN) 14.40% NM 11.90%
Click to enlarge

Source: S&P Capital IQ. Each of the data columns are last 12 months. NM = not meaningful.

These share some properties but not others and makes for an interesting comparison.

Portfolio Performance Comparison

Portfolio/Fund Name YTD
Return
1Yr AR 1Yr Sharpe 3Yr AR 3Yr Sharpe 5Yr AR 5Yr Sharpe
CMG 19% 49% 178% 74% 237% 38% 96%
MCD -8% 19% 149% 23% 160% 17% 76%
PNRA 14% 25% 70% 41% 127% 23% 54%
WEN 15% 22% 72% -1% -2% -17% -38%
Click to enlarge

We can see that CMG has outperformed the reference stocks and has done very well.

Three-Month Chart One-Year Chart Three-Year Chart Five-Year Chart

More data analysis...

We can see that all of these stocks have struggled a little recently and the question is whether now would be a good time to buy. With the focus on dividend stocks, many of these companies are trading at a premium.

I am putting CMG on watch as my MCD shares have dropped and I am going to hold them a little longer. However, should CMG drop, I will jump in and buy.

Disclosure: I am long MCD.

Disclaimer: MyPlanIQ does not have any business relationship with the company or companies mentioned in this article. It does not set up their retirement plans. The performance data of portfolios mentioned above are obtained through historical simulation and are hypothetical.