Is It Time To Reassess Chipotle Mexican Grill (CMG) After A 28% One Year Share Price Decline

• If you are wondering whether Chipotle Mexican Grill’s current share price still makes sense after a strong multi year run, this article will walk through what that price actually implies about the company’s value.
• The stock last closed at US$38.72, with a 4.0% return over the past 7 days, a 3.3% return year to date, a 28.0% decline over the last year, and longer term returns of 24.7% over 3 years and 33.6% over 5 years.
• Recent news coverage has focused on Chipotle’s store expansion plans, digital ordering growth, and ongoing menu and pricing changes. All of these themes help frame how investors are thinking about future cash flows and unit economics. Investors are also paying attention to how these themes compare with other quick service restaurant peers, which can influence how the market prices Chipotle’s growth profile and risk.
• Right now Chipotle’s valuation score comes in at 1 out of 6. We will look at how different methods like multiples and discounted cash flow line up with that result, before closing with a more complete way to think about valuation that ties the numbers back to the long term story.

Chipotle Mexican Grill scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Chipotle Mexican Grill Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow, or DCF, model estimates what a company might be worth by projecting its future cash flows and then discounting those back to today’s value using a required return. It is essentially asking what all of Chipotle Mexican Grill’s future cash generation is worth in today’s dollars.

For Chipotle Mexican Grill, the model used is a 2 stage Free Cash Flow to Equity approach, based on cash flow projections. The latest twelve month free cash flow is about US$1.46b. Analyst estimates and subsequent extrapolations point to projected free cash flow of roughly US$2.53b in 2030, with a path of annual forecasts and model based extensions between 2026 and 2035.

When those projected cash flows are discounted back and added up, Simply Wall St’s DCF model arrives at an estimated intrinsic value of US$36.28 per share. Against the recent share price of US$38.72, this implies the stock is about 6.7% overvalued, which is a relatively small gap and sits within a reasonable margin of error for this kind of model.

Result: ABOUT RIGHT

Chipotle Mexican Grill is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Chipotle Mexican Grill.

Approach 2: Chipotle Mexican Grill Price vs Earnings

P/E is a common way to look at valuation for profitable companies because it links what you pay for each share directly to the earnings that support that share. Higher expected growth and lower perceived risk usually justify a higher P/E, while slower growth and higher risk tend to point to a lower, more conservative range.

Chipotle Mexican Grill currently trades on a P/E of 32.84x. That sits above the Hospitality industry average P/E of 21.77x, but below the peer group average of 41.04x. Simply Wall St’s Fair Ratio for Chipotle Mexican Grill is 26.61x, which is its estimate of a suitable P/E given factors such as earnings growth, profit margins, industry, market cap and specific risks.

This Fair Ratio is more tailored than a simple comparison with peers or the broad industry, because it adjusts for Chipotle Mexican Grill’s own characteristics instead of assuming that one size fits all. Lining the two up, the current P/E of 32.84x is higher than the Fair Ratio of 26.61x, which points to the shares appearing overvalued on this metric.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Chipotle Mexican Grill Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce Narratives, which are simple stories you build around your own fair value, revenue, earnings and margin assumptions, then connect directly to a forecast and fair value that you can compare with the live share price. On Simply Wall St’s Community page, Narratives let you set out your view in plain language, link it to numbers, and see at a glance whether your fair value suggests Chipotle Mexican Grill is cheap or expensive relative to the current price, with those fair values updating automatically as fresh news or earnings arrive. For Chipotle Mexican Grill, one investor might align with the bullish Narrative that points to a fair value around US$54.79 per share, while another might lean toward the bearish Narrative closer to US$34.00, and Narratives make it easy to see how those two stories translate into different decisions when each fair value is set against today’s share price.

For Chipotle Mexican Grill, however, we will make it really easy for you with previews of two leading Chipotle Mexican Grill Narratives:

🐂 Chipotle Mexican Grill Bull Case

Fair value: US$44.24 per share

Implied undervaluation vs last close: about 12.5%

Assumed revenue growth: 10.40% per year

• Analysts in this camp highlight international expansion, catering, technology investments and marketing as key drivers for potential future revenue and margin improvement.
• Their framework is built around revenue reaching US$16.4b, earnings of US$2.3b and a future P/E multiple that is higher than the current Hospitality industry level.
• They also factor in ongoing share repurchases and use an 8.53% discount rate to bring those projected earnings and cash flows back to today when thinking about fair value.

🐻 Chipotle Mexican Grill Bear Case

Fair value: US$34.00 per share

Implied overvaluation vs last close: about 13.9%

Assumed revenue growth: 9.83% per year

• The bearish group focuses on risks around international expansion, unit growth while traffic is under pressure, input cost inflation and heavier reliance on promotions and digital incentives.
• Their assumptions include revenue of US$15.6b, earnings of US$1.9b and a future P/E of 28.7x, which is above the current Hospitality industry level but below today’s multiple in their scenario.
• They view the more cautious price target of US$34.00 as consistent with these inputs when discounted at 8.6%, and see the current share price as above what those assumptions would support.

If you want to see how other investors are connecting their own assumptions to fair values, you can use these two Chipotle Mexican Grill Narratives as reference points, then build or compare your own story around revenue, margins and valuation multiples that you find most reasonable.

Curious how numbers become stories that shape markets? Explore Community Narratives

Do you think there's more to the story for Chipotle Mexican Grill? Head over to our Community to see what others are saying!

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.

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