Chipotle Mexican Grill, Inc. (CMG) in Denver, Colo., is a leading fast-casual restaurant chain globally. It is ranked #464 on the Fortune 500 list and is one of Fortune’s most admired companies. CMG released its fiscal 2021 fourth-quarter earnings report on Feb. 8, 2022.

For its fiscal fourth quarter, ended Dec. 31, 2021, CMG’s total revenues increased 22% year-over-year to $2 billion. This can be attributed to a 15.2% rise in comparable restaurant sales and a 3.8% rise in digital sales. The company opened 78 new restaurants in the last quarter. According to CMG Chairman and CEO Brian Niccol, “2021 was an outstanding year for Chipotle, highlighting the strength and resiliency of our brand. Together, we accomplished many incredible things as our passionate employees remained dedicated to delivering excellent guest experiences, aligned with our purpose and values.”

However, CMG’s net income has declined 30.1% versus the same period last year to $133.48 million due to increased beef, avocado, and freight costs. The company’s total operating expenses have increased 20.9% from their year-ago value to $1.80 billion. And its EPS declined 29.9% from the prior-year quarter to $4.69. Since its last-quarter earnings report released on February 8, shares of CMG have climbed 7.1% in price to close Friday’s trading session at $1561.48. However, the stock has declined 10.7% year-to-date.

Here is what could shape CMG’s performance in the near term:

Stable Growth Prospects

Analysts expect CMG’s revenues to rise 15% in its fiscal 2022 first quarter (ending March 2022), 16.5% in the second quarter, and 14.7% in fiscal 2022. The consensus EPS estimates indicate an 8.6% improvement in the current quarter, an 18% rise in the next quarter, and a 25.1% increase in the current year. Furthermore, the Street expects CMG’s EPS to grow at a 29% CAGR over the next five years.

Legal Investigations

Last September, national law firm Morris Kandinov announced that it was  investigating CMG’s board of directors regarding possible breaches of fiduciary duties. Also, the firm is investigating CMG regarding alleged corporate governance failures related to recent transactions and/or events and other violations of law.

Frothy Valuation

In terms of forward non-GAAP P/E, CMG is currently trading at 49.46x, which is 265.5% higher than the 13.53x industry average. Its forward 1.09 non-GAAP PEG multiple  is 17.4% higher than the 0.93 industry average.

In addition, the stock’s 5.06 and 31.26 respective forward Price/Sales and EV/EBITDA ratios are significantly higher than the 1.09 and 9.61industry averages. Also, CMG’s 33.9 forward Price/Cash Flow multiple is 197.1% higher than the 11.14 industry average, while its 15.86 forward Price/Book ratio  is 429% higher than the 3 industry average.

POWR Ratings Reflect Uncertainty

CMG has an overall C rating, which equates to Neutral in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.

CMG has a C grade  for Stability and Momentum. Its relatively high 1.31 beta is in sync with the Stability grade. In addition, the stock is currently trading below its 50-day and 200-day moving averages of $1587.36 and $1662.49, respectively, indicating a downtrend and  justifying the Momentum grade.

Among 44 stocks in the B-rated Restaurants industry, CMG is ranked #31.

Beyond what I have stated above, view CMG ratings for Growth, Quality, Sentiment, and Value here.

Bottom Line

CMG’s strong revenue growth in the last quarter reflects the company’s brand recognition and customer loyalty worldwide. However, CMG's operating costs have risen substantially, with inflation levels hovering near 40-year highs and surging food prices. This has caused CMG’s bottom line to plummet in its last reported quarter. As heightened inflation levels persist, CMG’s earnings are expected to remain under pressure. Thus, we think that investors should wait until food prices and inflation levels stabilize before investing in CMG.

 How Does Chipotle Mexican Grill, Inc. (CMG) Stack Up Against its Peers?

While CMG has a C rating in our proprietary rating system, one might want to consider looking at its industry peers, Chuy's Holdings, Inc. (CHUY), Ruth's Hospitality Group, Inc. (RUTH), and Nathan's Famous, Inc. (NATH), which have a B (Buy) rating.

CMG shares were trading at $1,554.53 per share on Monday morning, down $6.95 (-0.45%). Year-to-date, CMG has declined -11.08%, versus a -7.74% rise in the benchmark S&P 500 index during the same period.

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.

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