Does Chipotle Mexican Grill Belong in Your Portfolio?

With shares of Chipotle Mexican Grill (NYSE:CMG) trading around $554, is CMG an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

T = Trends for a Stock’s Movement

Chipotle Mexican Grill operates restaurants throughout the United States, as well as two restaurants in Toronto and two in London. The company’s restaurants serve a menu of burritos, tacos, burrito bowls, and salads. Chipotle Mexican Grill manages its operations and restaurants based on six regions that all report into a single segment. It prides itself on serving the best possible ingredients during a time when consumers are more keen to this detail.

Chipotle Mexican Grill on Monday debuted its original comedy series, Farmed and Dangerous, on Hulu and Hulu Plus. The four-episode series marks Chipotle’s first foray into long-format, unbranded content. Produced in conjunction with Piro, a New York-based studio, the series stars Ray Wise (24, Mad Men, Twin Peaks) and Eric Pierpoint (Parks and Recreation, Big Love), and provides a satirical look at the lengths the agriculture industry goes to manage perceptions about its practices.

“Our goal in making the show was to engage people through entertainment and make them more curious about their food and where it comes from,” Mark Crumpacker, chief marketing and development officer at Chipotle and an executive producer of the show, said in a press release. “It’s not a show about Chipotle, but rather integrates the values that are at the heart of our business. The more people know about how food is raised, the more likely they will be to choose food made from better ingredients — like the food we serve at Chipotle.”

T = Technicals on the Stock Chart Are Strong

Chipotle Mexican Grill stock has been trending much higher in the last several years. The stock is currently trading near all-time highs and looks poised to continue. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Chipotle Mexican Grill is trading above its rising key averages, which signals neutral to bullish price action in the near-term.

CMG

Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Chipotle Mexican Grill options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Chipotle Mexican Grill options

19.16%

0%

0%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

March Options

Flat

Average

April Options

Flat

Average

As of Monday, there is average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Chipotle Mexican Grill’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Chipotle Mexican Grill look like and more importantly, how did the markets like these numbers?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)

30.08%

17.18%

10.16%

24.37%

Revenue Growth (Y-O-Y)

20.74%

18.04%

18.22%

13.45%

Earnings Reaction

11.74%

16.09%

8.55%

11.53%

Chipotle Mexican Grill has seen increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Chipotle Mexican Grill’s recent earnings announcements.

P = Excellent Relative Performance Versus Peers and Sector

How has Chipotle Mexican Grill stock done relative to its peers – Panera Bread (NASDAQ:PNRA), McDonald’s (NYSE;MCD), and Yum Brands (NYSE:YUM) — and sector?

Chipotle Mexican Grill

Panera Bread

McDonald’s

Yum! Brands

Sector

Year-to-Date Return

4%

0.87%

-1.29%

-2.9%

1.17%

Chipotle Mexican Grill has been a relative performance leader, year-to-date.

Conclusion

Chipotle Mexican Grill provides consumers with quick, delicious, and healthy food options on a daily basis. The company today debuts its original comedy series, “Farmed and Dangerous” on Hulu and Hulu Plus. The stock has been exploding higher and is currently trading near all time highs. Over the last four quarters, earnings and revenues have been on the rise which has led to excited investors. Relative to its peers and sector, Chipotle Mexican Grill has been a year-to-date performance leader. Look for Chipotle Mexican Grill to continue to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

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