- Some investors may be wondering if Chipotle Mexican Grill at around US$32.17 is starting to look interesting again, or if the recent weakness is a warning sign.
- Over the past year the stock has delivered a 36.8% decline, with shorter term moves of a 2.3% decline over 7 days, an 11.8% decline over 30 days, and a 14.2% decline year to date. These moves may signal changing views on its prospects and risk.
- Recent headlines around Chipotle have focused on its share price pullback and what that could mean for long term holders, with commentators debating whether sentiment has overreacted to near term concerns. At the same time, the company continues to feature in broader discussions about consumer spending and restaurant stocks, which feeds directly into how investors think about what they are willing to pay for the shares.
- Chipotle currently holds a valuation score of 4 out of 6. The rest of this article will walk through the standard valuation approaches behind that score and finish by outlining a more holistic way to think about what the stock might be worth.
Find out why Chipotle Mexican Grill's -36.8% return over the last year is lagging behind its peers.
Approach 1: Chipotle Mexican Grill Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow, or DCF, model projects a company’s future cash flows and then discounts them back to today’s value to estimate what the business might be worth per share.
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 US$1.46b. Analyst inputs and Simply Wall St extrapolations suggest Free Cash Flow of US$2.53b in 2030, with a series of annual projections between 2026 and 2035 that are discounted back to today in the model.
Taking all those projected cash flows together, the DCF model arrives at an estimated intrinsic value of US$36.13 per share. Compared to a current share price of about US$32.17, this indicates the shares trade at roughly an 11.0% discount to that DCF estimate. On this specific cash flow view, the stock appears to be trading below that estimated intrinsic value.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Chipotle Mexican Grill is undervalued by 11.0%. Track this in your watchlist or portfolio, or discover 61 more high quality undervalued stocks.
Approach 2: Chipotle Mexican Grill Price vs Earnings
P/E is a common way to look at profitable companies because it ties what you pay directly to the earnings the business is already generating. The multiple investors are comfortable paying usually reflects a mix of what they expect from future earnings growth and how much risk they see in those earnings.
Chipotle Mexican Grill currently trades on a P/E of about 27.28x. That sits above the Hospitality industry average of 21.11x, but below the peer group average of 36.75x, so the stock is priced at a premium to the broader industry while sitting at a discount to closer peers.
Simply Wall St’s Fair Ratio for Chipotle is 28.14x. This is a proprietary estimate of what a “normal” P/E might look like given factors such as earnings growth, profit margins, industry, market cap and company specific risks. Because it blends these company level inputs, it can give a more tailored view than a simple comparison with industry or peer averages alone. On this basis, Chipotle’s current P/E is slightly below the Fair Ratio, indicating that the valuation is modestly lower than this earnings-based reference point.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your Chipotle Mexican Grill Narrative
Earlier it was mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St’s Community page let you turn your view of Chipotle Mexican Grill into a clear story that links assumptions about future revenue, earnings and margins to a forecast and then to a Fair Value. It then compares that Fair Value with today’s share price to help you judge whether it looks attractive or stretched, and automatically refreshes as new news or earnings arrive. For example, one investor might build a more optimistic Chipotle view using a Fair Value around US$54.79, while another might use a cautious Fair Value of about US$34.00, and you can see both side by side to decide which story fits your own expectations best.
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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