Chipolte Mexican Grill on Margin
February 22nd, 2007 by MarkIn his classic, One up on Wall Street, Peter Lynch stressed the importance of buying what you know. If there’s anything I know, it’s food. A particular favorite of mine is Chipotle Mexican Grill. During college, I must have eaten hundreds of their large, organic burritos, stuffed with rice, cheese, grilled meats and vegetables. Even now, I still have the frequent diner punch card I picked up when I ate there during my last trip home to see my family. I absolutely love the food. Can’t get enough of it.
So, it was with great interest that I’ve read about the company since its IPO. Right now there’s quite a bit of media attention for the company, which I would normally consider a negative. The stock is also expensive; at its current price of about $63.5/share, its PE is nearly 50. That’s quite a bit for a fast food chain.
On the other hand, Chipotle had an insanely good quarter. For the period, earnings more than doubled. Their margins improved on every single line item of operational costs. They’ve become a force to be reckoned with in Colorado, my home state, and now they’re spreading into new markets, such as Philadelphia, PA and Jacksonville, TN. This is exactly the stage of a company that Lynch liked to buy into. It’s already proven it has a system that can be replicated across many new stores, but it still hasn’t spread across that many regions yet.
Investing in a regional chain does entail some risk, obviously. Coloradans are the leanest and most active Americans by a sizable margin. Maybe the rest of the country just isn’t as interested in healthier fast food offerings. It’s also possible that Chipotle’s food won’t be as appetizing to people in Philly as it is to me. On the other hand, at it’s current size, Chipotle has a reasonable chance of growing at 25% a year for several years straight. That sort of return would be very unlikely from a national chain.
I still don’t have any money saved to put into my investment account, so I bought it on margin. As a rule, I don’t like to invest more than 20% on margin. With the volatility of the stocks I invest in, it wouldn’t be very safe to do so. However, due to the fact that my portfolio has done far better than I expected over the last year, I have plenty of room to spare. I bought 45 shares at $63.55 each.
Related post: Wisdom and Engrish from Peter Lynch:
One up on Wall Street
Business Week: Chipotle: Fast Food with Integrity
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February 22nd, 2007 at 3:30 pm
Chipotle might be fresh and tasty, but it sure ain’t healthy.
http://www.cspinet.org/new/200309301.html
Not that I’d mind tucking into a huge burrito now…mmm.
February 22nd, 2007 at 4:01 pm
I couldn’t disagree more.
(though it wouldn’t affect my investment decision if I did agree)
I’ve been aware of the number of calories in a Chipotle burrito for years. Like Qdoba, they list the calorie levels of each component right on their website. The article you linked to is a bit misleading.
High calorie doesn’t mean unhealthy. Peanut butter is extremely calorie dense, but provides a large number of health benefits. In fact, it even helps dieters keep off weight. Diet soda, on the other hand has no calories at all and is extremely unhealthy.
The key to healthy eating is whole, unprocessed foods, and for the most part, that’s what Chipotle’s got. The only valid concern mentioned in the page that you linked to is salt. What would have been a more reasonable to attack would be the portions Chipotle and Qdoba serve.
I highly recommend the following article for those interested in nutrition: Unhappy Meals, by Michael Pollan
March 18th, 2007 at 1:25 am
There’s a Chipotle in Monterey. Tons of people from DLI used to eat there regularly. They even have a military discount!
On a related note, I heard somewhere that Chipotle is owned by McDonald’s. Have you heard anything like that?
March 18th, 2007 at 3:28 am
Yeah, Tom. McDonald’s owns quite a bit of Chipotle, and at one point they held over 90% of the company. It was when they spun it off that the Chipotle stock had an IPO and it became possible to invest in Chipotle separate from McDonalds.
April 1st, 2007 at 1:48 am
i went to apply at all the chipotle restraunts in the columbus ohio areas and I was told by all of them they are not hiring. I am white. A week later my kids dad gets a job at one and he dont have any experience what so ever. Nor is he here lagally and to top it off he has no legal id. So the only way he got the job was through his friend Jorge. Tell me if they did not discriminate against me? I am going to see a lawyer monday lets see who gets to keep whos company and job after this. I have spoke to other people who have applied and the same happened to them. Top it off, this distoyed my relationship because he is mexican also and feels it is where he belongs and it is more important than spending time with his family. He works another job. See you in court Chipotle !
April 1st, 2007 at 1:51 am
I think you may need to know the name of that person is Francisco J.M.B. his friend is Jorge. So either you all start taking care of business and giving people chances to work or you going to have more issues.
April 1st, 2007 at 3:55 am
Angry, I think that you may need to know that I do not control any Chipotle decisions. Just because I bought 45 shares of their stock, thus becoming owner of .00013766% of the company does not mean I have a seat on the board, that I can get you a job or that I can keep the company from hiring Mexicans, even if I shared your xenophobic tenancies. Unless you’d like to discuss investing, please take your comments elsewhere.
April 22nd, 2007 at 3:59 am
Long time no see. I’ve thought a lot about buying up some chipotle, i’m not sure about buying on margin though. If i wasn’t living off my portfolio right now I think I would make it happen….