Chipotle Mexican Grill: Ascending Past True Value

| About: Chipotle Mexican (CMG)

Investors like looking for a high-growth stock for their portfolio to generate quick income. These stocks can gain momentum and investor popularity quickly and ascend at a rate that might be unrealistic in comparison with their actual value. One stock in particular that is experiencing this situation is Chipotle Mexican Grill (NYSE:CMG).

The chart below can be found here.

Chipotle has been growing at a steady and brisk rate ever since it went public in 2006. After reporting slowing sales numbers for Q2 and revenue of $690.9 million, a 20.9% increase, Chipotle's stock price has tumbled over 25% to under $300 from its 52-week high of $442.40 per share. The analysts' revenue expectations were $704.8 million, and despite Chipotle's revenue still increasing 20.9% from the previous year, and the company posting earnings that beat analyst expectations by 26 cents, share prices still plummeted. Slowing sales were attributed to a slowing economy, and as a result reduced consumer spending.

I believe this pullback might offer a terrific re-entry point for investors who have been eying Chipotle for a while. Chipotle's price had shot up too quickly, and despite being a terrific stock, its PE multiple was just under 44, compared with McDonald's (NYSE:MCD) at 17, Yum Brand's (NYSE:YUM) at 21, Panera Bread's (NASDAQ:PNRA) at 30, and Buffalo Wild Wing's (NASDAQ:BWLD) at 25. A PE multiple that high leaves very little room for error, and in this circumstance Chipotle was hit hard. Investors can buy Chipotle at these levels though and feel much safer with their investment because the company is no longer trading at such an outrageously high PE multiple compared with the rest of the sector, but still contains high growth ability.

Chipotle has proven that it can maintain accelerating sales even after a decline in the rate of gain. Q4 in 2008 revenue rose 19.5% from the previous year, but the sales growth slowed and remained slow for the next four quarters, posting sales increases of only 16.1%, 14.1%, 13.8%, and 12.2%. However, Chipotle rebounded and has now strung together nine consecutive quarters of 20% plus sales growths.

If you trust Chipotle and the company's philosophy of serving healthy organic fast food burritos, then stick with it. The company needed this slip up to bring its share price down to realistic levels, but the growth will still continue as America shows increasing interest in eating healthier. Chipotle has 1,316 restaurants and plans on opening 165 new locations this year. Its current price of $292 makes this company an attractive buy candidate in my opinion.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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