Following a series of scandals which have resulted in shares of Chipotle Mexican Grill Inc. (NYSE:CMG) currently trading at levels which are comparable with five years ago, long-term investors may be enticed by what may otherwise appear to be a relatively "cheap" stock with plenty of upside potential (assuming the company's management team will find a way to return revenue and earnings numbers to their former glory).
As it stands currently, Chipotle continues to carry on in a public perception battle which saw the firm severely wounded in recent years.
Finding new avenues to reach consumers to let them know about the company's "For Real" food and commitment to quality is great. Adding on new store formats (with drive-thru capabilities), increasing online orders as a percentage of total revenue, and making the consumer experience easier and faster are all good things.
The reality, however, is that Chipotle is currently priced at a significant premium to its current (and future) state, making this a fundamental short play for investors with a medium-term timeline, in my books.
By most traditional metrics, Chipotle remains significantly overvalued. At a price to sales ratio of more than 3 (with 1.5 typically considered to be "too expensive" for tech investors and those looking at high-risk growth plays), it appears to me that investors are currently pricing in far too much future growth for an investment in Chipotle to make sense at anything above $250. Looking at other fundamental metrics, the story stays the same.
Invest wisely, my friends.
