Chipotle Stock: Valuation Leaves Little Room for Error

Chipotle Mexican Grill (CMG) has seen a significant increase in share price over the past year due to its improving fundamentals. The company owns and operates 2,724 Chipotle restaurants in the United States, 40 international Chipotle restaurants, and Read More... The post Chipotle Stock: Valuation Leaves Little Room for Error appeared first on TipRanks Financial Blog.

Chipotle Stock: Valuation Leaves Little Room for Error

Chipotle Mexican Grill () has seen a significant increase in share price over the past year due to its improving fundamentals.

The company owns and operates 2,724 Chipotle restaurants in the United States, 40 international Chipotle restaurants, and four non-Chipotle restaurants. 

In Q2, sales grew 31.2% and margins improved as well. Although the future of the company looks bright, we remain neutral on CMG. (See Chipotle stock charts on TipRanks) 

Industry Analysis, Growth Catalysts 

Pre-pandemic, the global fast food and quick service restaurant market size was valued at $257.19 billion, and was forecasted to grow at a compounded annual growth rate (CAGR) of 5.1% from 2020 to 2027. 

The expected market growth is due to an increasing global preference for fast food among Generations X, Y, and Z, an increase in the number of fast-food restaurants, and technology advancements.

Of course, the pandemic disrupted things in 2020, but the underlying trend remains intact. Advancements, and the increasing adaptation of technology, have made it easier for people to get the meals they want. 

Think of apps like Uber Eats or SkipTheDishes, or curbside pickup options. People value convenience, and will pay for it by eating at restaurants such as Chipotle. 

Speaking of convenience, Chipotle is investing in it through opening more “Chipotlanes,” which are essentially drive-thrus. The good thing about Chipotlanes is that their unit economics are better than regular restaurants. 

Here is what Chipotle’s CFO, Jack Hartung, had to say about Chipotlanes in the most recent earnings call: 

“New Chipotlanes are opening with about 20% higher sales compared to the non-Chipotlanes opened during the same time period. Over the trailing 12 months, Chipotlanes restaurant continues to drive about a 15% higher overall digital sales mix compared to non-Chipotlanes, and it's skewed heavily towards order ahead, our highest margin transaction.” 

Chipotle anticipates that adding Chipotlanes will improve the company’s returns on capital. This makes sense because as mentioned in the quote above, Chipotlanes generate higher margin revenue, which should give a boost to overall margins going forward. Management also expects margins to increase in the long-term. 

Besides Chipotlanes, Chipotle opened a digital kitchen location in 2020 that offers only pickup and delivery. If CMG finds that it is worth it to add more of these locations, then it can be another growth catalyst going forward. 

With the opening of new locations and an expected increase in average unit volume (from $2.41M to $3M), CMG’s revenue is forecasted by analysts to increase by 25.7% in 2021, and 13.9% in 2022. 

Main Risks 

CMG’s stock is currently near all-time highs. It's up 42.8% year-to-date and 58.2% in the past year, versus 17.8% year-to-date and 27.8% in the past year for the S&P 500.

A lot of optimism could currently be priced into the stock, as one might be able to tell from the stock’s runup, 71.4x EV/FCF multiple, and 8.2x EV/Sales multiple, which is the highest this multiple has ever been with data going back to 2006. 

The high optimism leaves little room for error, and makes the stock vulnerable to large price drops on any disappointing news. 

As well, particularly from 2015-18, CMG had been involved in many food illness outbreaks which hurt the company’s reputation and financial performance.

If you are a Chipotle investor, keep in mind that another outbreak can happen at any time, and if it gathers lots of media attention, then it will certainly hurt the stock price. Nonetheless, this doesn’t seem to be a problem for now.  

Wall Street’s Take 

Turning to Wall Street, 23 analysts offered 12-month price targets for Chipotle in the last three months. Chipotle has a Moderate Buy consensus rating, based on 16 Buys and seven Holds. 

The average CMG price target is $1,913.45, with a high forecast of $2,600 and a low forecast of $1,600. The average price target represents 1% upside from current levels.

Final Thoughts 

Chipotle can continue to execute going forward, but the risk/reward is not great, as the stock is near all-time highs, and has an extended valuation.  

Disclosure: At the time of publication, Stock Bros Research did not have a position in any of the securities mentioned in this article.

​Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

The post Chipotle Stock: Valuation Leaves Little Room for Error appeared first on TipRanks Financial Blog.

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Rocket Lab USA: What's Next after Recent Swings

One could say Rocket Lab USA (RKLB) stock lived up to its name earlier this month. The space launch and satellite manufacturing company saw its shares zoom from around $10, Read More... The post Rocket Lab USA: What's Next after Recent Swings appeared first on TipRanks Financial Blog.

Rocket Lab USA: What's Next after Recent Swings

One could say Rocket Lab USA () stock lived up to its name earlier this month. The space launch and satellite manufacturing company saw its shares zoom from around $10, to as much as $21.34 per share, in a matter of days.

The reason? Solid quarterly results, along with news of a major contract win. Following both positive developments however, investors have decided to “sell on the news.”

As a result, the stock has dipped back to around $15.50 per share. So, following its pullback, is now the time to buy? (See RKLB stock charts on TipRanks)

I’m staying bearish until it moves back to lower price levels.

Analysts, Investors Excited about RKLB Stock

Even with recent profit-taking, retail excitement remains elevated with Rocket Lab USA shares. That’s clear from the high level of discussion about it on platforms like Reddit’s r/WallStreetBets.

Make no mistake however, there’s more on the side of RKLB stock than just “meme stock” popularity. The sell-side in general has shown enthusiasm for it as well. For example, Edison Yu of Deutsche Bank recently gave shares a Buy rating, and a $18 price target.

The rationale for his bullishness? Yu sees it as the “highest quality” name among the space stocks that have recently gone public.

The other analyst to give it a Buy rating, Canaccord’s Austin Moeller, is even more bullish. Giving it a $30 per share price target, Moeller believes it’s second only to Elon Musk’s SpaceX among commercial space launch operators.

Yet despite the bullishness surrounding it, buying in today may not be the way to go. Mainly, because of the high likelihood shares fall further in price, before they climb back to recent highs, and beyond.

Reasons for Concern

RKLB stock may have a lot in its corner long-term. But two near-term factors may mean more declines lie ahead. 

First, an upcoming lockup expiration. Yu himself mentioned this as a key concern in his research note. Once details about planned selling by private investors in this former SPAC (special purpose acquisition company) become known later this month (via an S-1 filing), investors could react negatively, sending shares lower even before the lockup ends.

Second, the stock’s premium valuation. Its 2021 projected revenue of between $50 million and $54 million hardly justifies this stock’s current trading levels.

Granted, with the high-growth projections laid out in its investor presentation, it makes sense why investors have been willing to pay up for it. Demand growth for both its launch and satellite businesses could mean its top line soars more than 29-fold over the next six years, to $1.57 billion.

Yet that may not be enough to counter factors like Federal Reserve tapering, and possible interest rate increases, which could lower the appeal of growth stocks in the months ahead.

Downward pressure from either of these two issues could send shares back to their SPAC offering price ($10 per share). Or perhaps, even lower.

What Analysts are Saying about RKLB Stock

According to TipRanks, RKLB stock has a consensus rating of Moderate Buy. Out of three analyst ratings, two rate it a Buy, while one analyst rates it a Hold.

The average RKLB price target is $22 per share, implying 48.6% upside from today’s prices. Analyst price targets range from a low of $18 per share, to a high of $30 per share.

Bottom Line

Until SpaceX goes public, Rocket Lab USA may be one of the best options for investors looking for exposure to the fast-growing space sector.

However as traders take profit, concerns continue to mount regarding upcoming insider selling, and possible downward pressure on growth stocks overall.

The best move for investors may be to sit things out, until RKLB stock makes a further descent back to earth.

Disclosure: At the time of publication, Thomas Niel did not have a position in any of the securities mentioned in this article.

​Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of Tipranks or its affiliates, and should be considered for informational purposes only. Tipranks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. Tipranks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by Tipranks or its affiliates. Past performance is not indicative of future results, prices or performance.

The post Rocket Lab USA: What's Next after Recent Swings appeared first on TipRanks Financial Blog.

Source : Tip Ranks More   

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