Summary
- Chipotle has been a great investment over recent years, outperforming the S&P 500 by a wide margin.
- The company is however overvalued, with a lofty P/E ratio of above 40 and a P/B ratio of above 16. Multiple times higher than its peers.
- A lot of expected growth has already been priced in, with an expected annual growth rate of free cash flow per share of 17% over the next ten years.
- I expect long-term cash flow growth rates to be lower than this, as there is limited possible growth for the number of restaurants and their profitability in the future.
- Taking into account the high expected growth rates and the growth risks and limitations that Chipotle faces, I assign it a Sell rating.
For further details see:
Chipotle: Too Much Growth Priced In