Is Chipotle Mexican Grill a Buy After a Recent Earnings Announcement?

With shares of Chipotle Mexican Grill (NYSE:CMG) trading around $506, 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, Canada and two in London, England. 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 in serving the best possible ingredients during a time when consumers are more keen to this detail.

On Friday morning, Chipotle Mexican Grill reported earnings and revenues figures that surpassed Wall Street’s expectations. “Our unique food culture continues to resonate with our customers. We are proud of the investments we have made over the years to source sustainably raised ingredients, which allows us to serve delicious food. By sourcing the best possible ingredients and cooking them according to classic cooking techniques we continue to demonstrate that just because food is served fast, it doesn’t have to be a typical fast food experience,” said Steve Ells, Founder, Chairman and co-CEO of 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 highs for the year and looks ready to continue higher. 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 signal 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

21.95%

0%

0%

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

Put IV Skew

Call IV Skew

November Options

Flat

Average

December Options

Flat

Average

As of today, there is an 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 minimal 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 Q3

2013 Q2

2013 Q1

2012 Q4

Earnings Growth (Y-O-Y)

17.18%

10.16%

24.37%

7.75%

Revenue Growth (Y-O-Y)

18.04%

18.22%

13.45%

17.16%

Earnings Reaction

15.28%*

8.55%

11.53%

5.72%

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

* As of this writing

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), Yum! Brands (NYSE:YUM), and sector?

Chipotle Mexican Grill

Panera Bread

McDonald’s

Yum! Brands

Sector

Year-to-Date Return

69.05%

0.43%

8.03%

0.99%

17.13%

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. A recent earnings release has markets really upbeat about the company. The stock has been exploding higher and is currently trading near highs for the year. 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.