It looks like investors choked on Chipotle (NYSE: CMG) (NYSE: CMG-B) after the Mexican restaurant concept reported its second-quarter earnings.
Chipotle's second-quarter net income increased 22.5% to $24.5 million, or $0.74 per share. Revenue increased by 24.2% to $340.8 million, and same-store sales increased 7.1%.
If those figures don't sound all that bad to you, well, Chipotle missed analysts' expectations by a penny, and restaurant level operating margins decreased 80 basis points to 22.4%. In addition, a flurry of analyst downgrades have probably also contributed to today's extreme loss of appetite for Chipotle shares. (Last I checked, Chipotle shares had fallen about 18%.)
I thought weakness in Chipotle stock in February represented a second chance to get into Chipotle, but it looks like I was a little early on that call. Anyone care for another chance? Of course, last October, I feared Chipotle was overstuffed with optimism -- now I'd say it's suffering from the opposite psychology.
Chipotle is now trading at just 20 times forward earnings -- lower than its anticipated 26% increase in earnings expected that year -- and it has a PEG ratio of 0.76. This all sounds very reasonable for a high-growth company with a solid brand that expects long-term growth of 25%. It's also got a solid balance sheet with plenty of cash and very little debt.
Meanwhile, many people may think of Chipotle as just another fast-food company, but it's an innovator in its niche along the same lines as companies like Starbucks (Nasdaq: SBUX) and Whole Foods Market (Nasdaq: WFMI). Chipotle's emphasis on naturally raised and locally sourced ingredients lends it competitive advantage over many other restaurant companies.
Investors may need a strong stomach to invest in consumer-centric companies like Chipotle, which are vulnerable to the tough economy we're all currently navigating. And, of course, there’s also vulnerability to high commodity prices, which have also caused some concern about Chipotle's former parent, McDonald's (NYSE: MCD). However, for those with long-term horizons, times like this -- when people panic about short-term concerns -- represent great opportunities to pick up shares of awesome companies for a steal.
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