Let's talk about the popular Chipotle Mexican Grill, Inc. (NYSE:CMG). The company's shares received a lot of attention from a substantial price increase on the NYSE over the last few months. The company's trading levels have reached its high for the past year, following the recent bounce in the share price. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock's share price. However, what if the stock is still a bargain? Let's examine Chipotle Mexican Grill's valuation and outlook in more detail to determine if there's still a bargain opportunity.
Is Chipotle Mexican Grill Still Cheap?
Chipotle Mexican Grill is currently expensive based on our price multiple model, where we look at the company's price-to-earnings ratio in comparison to the industry average. We've used the price-to-earnings ratio in this instance because there's not enough visibility to forecast its cash flows. The stock's ratio of 67.3x is currently well-above the industry average of 18.89x, meaning that it is trading at a more expensive price relative to its peers. But, is there another opportunity to buy low in the future? Since Chipotle Mexican Grill's share price is quite volatile, this could mean it can sink lower (or rise even further) in the future, giving us another chance to invest. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What kind of growth will Chipotle Mexican Grill generate?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let's also take a look at the company's future expectations. With profit expected to grow by 74% over the next couple of years, the future seems bright for Chipotle Mexican Grill. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What This Means For You
Are you a shareholder? It seems like the market has well and truly priced in CMG's positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe CMG should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.
Are you a potential investor? If you've been keeping an eye on CMG for a while, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for CMG, which means it's worth diving deeper into other factors in order to take advantage of the next price drop.
If you want to dive deeper into Chipotle Mexican Grill, you'd also look into what risks it is currently facing. While conducting our analysis, we found that Chipotle Mexican Grill has 1 warning sign and it would be unwise to ignore this.
If you are no longer interested in Chipotle Mexican Grill, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.