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Food day subscribers thank you so much for joining me today i am jeremy this is a financial education channel and today we are talking about chipotle in is chipotle stock a buy this stock was requested by me al ryan he asked for cmg so we are doing chipotle today i hope you guys really enjoyed this hit a thumbs up if you guys enjoy these is it a bye videos and please
In the comments section let me know what video y me excuse me what stock you like to see me break down on the video next week so let’s go ahead and get right into chipotle here and and kind of view it so first off chipotle we’re gonna act like we have no clue what kind of business they are chipotle mexican girl a delaware corporation together with its subsidiaries
Chipotle the company operates chipotle mexican grill restaurants which serve a focused menu of burritos tacos burrito bowls and burrito without a tortilla salads using fresh ingredients as of december 31st 2015 we operated almost 2000 chipotle restaurants through the united states as well as 11 in canada seven in england foreign france 1 in germany additionally
Our restaurants include 13 shophouse south east asian kitchen restaurant serving asian-inspired cuisine and they’re also invested in a pizza restaurant as well so right off the bat here we get a pretty good idea what folios we probably already know what chipotle is if you live in america it’s basically a fast casual mexican place you know that serves mexican type
Foods on a mexican grill and they have an expanding business a little bit internationally we see that they have very few internationally known restaurants right now they have i mean the most they have in any other country was canada and it’s 11 so they’re hardly expanded internationally at all that’s potentially a huge opportunity if they can execute that and do
That properly and build on that also we see that they’re into some other businesses they’re starting up the the shop house southeast asian kitchen that could be an exciting idea what if some day they have 2,000 of those and those are all very profitable grunts just the same way chipotle is that’s another huge opportunity they’re also investing the pizza restaurant
Which i’m not quite as excited about and they’ve also just gotten into the burger business they used to open up their first burger place and sales have been very strong according to upper management so they’re into a lot of other businesses that they’re kind of they’re putting their toes in right now to see if this could be the next chipotle this or that so that’s
Exciting to see it’s exciting to see and from from what we’ve heard from management and seen all those businesses are doing pretty well so far so let’s go ahead and look into this more now this i highlight it this is a by the way all this information we’re looking at here in this beginning part this is all in the 10k annual report section on the company’s investor
Relations page this i highlighted restaurant site selection we believe site selection is critical to our success unless we devote substantial time and effort to evaluate each potential location it goes into talking more about how they select sites and those kinds of things i think this is huge any time you’re in any type of fast food place fast casual type food
Place convenience store pharmacy location location location is key is so key and i gotta say i’ve been to chipotle all across america north on california arizona nevada north carolina south carolina i’ve been to so many all across the united states and i’ve gotta say i’ve never been to a chipotle that did not have a bet that did not have a good location something
I would consider with my experience in background in site selection which i used to perform for my own company i see nothing i just didn’t ever seen a bed chipotle location i’ve never seen a bad one like i’m like oh there’s such bad location it’s dead it’s off this road why would they put it here never never ever ever this is extremely important that’s a very good
Skill chipotle has that they can adapt to these new brands if they end up you know going those routes if they want to expand that southeast asian kitchen and you know they have a thousand 2,000 restaurants of that i have a lot of confidence that they’ll be able to pick very good locations for that business model so that is a big one you’re looking at chipotle in my
Opinion in any restaurant related stock for that matter let’s go ahead and look into this more so now we will go ahead and look in the more at this shop house we opened our first shop house south east asian kitchen during 2011 so about five years ago and we now have a total of thirteen shop house restaurants shop house serves a menu that like it chipotle’s focused
Main dishes consist of rice and noodle bowls made with steak chicken meatballs made with pork and chicken or tofu so basically the shop house aged east asian kitchen it’s i’ve got a chipotle take model if you i would suggest you guys on when you’re done this video you search on youtube if you’ve never seen it you know the shop house east asian kitchen and actually
Take a view for yourself and kind of see what it’s like it reminds me so much of this fully experience you go online you say we want this and i want this and i don’t want that i want this and they just put it all there and everything’s kind of ready to go and it looks pretty freakin good if i had one in my state i would gladly go and try it out it looks freakin
Awesome so this this model i’m very excited about when i look into chipotle i think it has a lot of potential to expand and expand it but they’ve done it very slowly look at they opened their first one 2011 five years later they only have 13 so they’re not like going full-bore into this like let’s just say they’re trying to test the waters and see only this works
This doesn’t work so good and i think that’s really smart and also that leaves more money for them to put to their main business right now which is opening up to pull a restaurants so but at some point in time that’s your poly growth in at least in the united states is gonna die it’s gonna die it’s gonna end you know you can only put so many restaurants so many
Places as far as cipolla goes this this gives the opportunity to grow and double the company in my opinion in the future if they can do it properly and do it right next up now we’re in the risk factor section on this annual report and we’re looking at risk related to food safety incidents that occurred in 2015 our system-wide restaurant sales were adversely impacted
Beginning in the fourth quarter 2015 by food safety incidents associated with our rest we may not be able to regain lost sales during late october and early november 2015 illness caused by e coli bacteria was connected to a number of restaurants initially in washington and oregon this is huge and just as i mentioned actually when we broke down shake shack last
Week i mentioned that no matter what restaurant you ever invest in this is always the biggest risk factor if you have something like an e coli type situation that can kill that stock so bad and sometimes it can end restaurants i’ve been extremely impressed in the weight chipotle has handled this negative situation and kind of i guess you say wrap the wound that’s
What they’ve done they basically wrap the wound so they’re bleeding much less than i actually anticipated them bleeding but it still hurt their business dramatically dramatically they went from a growth engine growing you know comp store sales which we’ll look at in a little while but you know way up here – they’re decreasing way down almost overnight and that’s
What happens you have a e.coli situation everybody gets freaked out no one wants to eat there even i didn’t go to police for months and i used to go to foley at least once a month if not once every couple weeks i didn’t go there for three four or five months after the situation there’s some customers that may never be one back because of the situation and i think
This is very important to look at when you’re looking at any restaurant stock and in particular chipotle because they’ve actually gone through this situation now our business could be adversely affected by increased labor costs or difficulties finding the right employees for our restaurants in field leaders this is another important factor i’m taking into account
We see all across the united states right now wages increasing and we see minimum wages state by state being increased pretty dramatically lot of states are going twenty thirty forty percent higher on their minimum wage and they used to i think that has a potential to be a great thing for the overall economy personally that’s my bike i guess you say view on it
But as far as chipotle as far as a food-related stock see i don’t see it helping them at all because i you gotta eat don’t matter what so if you eat chipotle once a week you know when minimum wage is higher you’re probably still gonna each totally once a week i don’t see these type of businesses being helped by a higher minimum wage there’s many other businesses
Like housing and cars and all those things that can be helped by higher wages but food food you can eat food regardless you even go to mcdonald’s or chipotle or taco bell or wherever regardless of whether you know the wages are at $10 an hour or $12 an hour so but those wages if they go higher and higher they will hurt to put these operating margins and then also
You’ll need to then raise them the wages on the managers and whatnot those all need to be paid more because you know if for the assistant managers get it paid $12 an hour right now and the line cooks being paid $12 an hour something’s wrong there so you gonna need a jack the assistant manager up to $14 an hour so on and so forth so this has a big impact potential
On all food related stocks in the fast food fast casual restaurant space now let’s go ahead and look at those financials so we have 2013 all the way on the far right and 2015 all the way in the far left now it is amazing to me that they were able to still have a straw decent growth year as far as revenue and net income went last year over 2014 despite the whole
E.coli situation and how dramatically that negatively affected the fourth quarter numbers the fourth quarter numbers were absolutely pathetic that chipotle reported so they would have had a a ridiculously great growth year again as far as revenues in net income went but even with the chipotle excuse me the e.coli situation they still had decent growth so we look
You know 2013 they did 3.2 billion dollars in revenue they did 4.5 billion last year they did 327 million in net income in 2013 is a four hundred seventy five million last year and once again last year did have that one quarter with the horrible sales from the e.coli situation so we can see here guys that chipotle is a nation growth company or at least has been
A nice growth company in the past will happen in the future we’re gonna have to view that more balance sheet balance sheet we have a very strong balance sheet here look at this we have about 250 million in cash and cash equivalents we’re looking at only 2015 years so you guys know we have four hundred fifteen million in short term investments we have six hundred
And twenty-two million in long term investments we have no short term debt and no long term debt at all so we add about 1.2 1.3 billion in cash investments more than we have any type of debt so that is an extremely strong balance sheet extremely strong one of the best i’ve seen in quite a while i’m very impressed by his balance sheet it doesn’t get much better than
That to be honest guys it does not so if you’re looking for a model balance sheet that’s your model balance sheet to look at when you’re looking at into a company now this is their latest quarterly results they announced about two weeks ago so this was for the let’s seen july august and september quarter revenue decreased fourteen point eight percent to 1 billion
Not so good comparable stores transactions down fifteen point two percent now remember this is year over year so this is this year versus last year in that same quarter which they did not they were not affected by the e.coli situation in that quarter comparable restaurant sales decreased twenty one point nine percent which includes a point eight percent decrease in
Revenue differential related to unredeemed chipotle cheapo tia rewards so you know net income looking the netting from line seven point eight million a decrease from one hundred and forty four point nine million the the quarter i mean excuse me the year before in the same quarter so we can see it’s just a disaster it’s just a freakin disaster as far as what type
Of numbers are reporting now versus what type of numbers they reported last year at this time when you go from making a profit of one hundred and forty-five million totally making a profit of eight million one year later that’s an absolute disaster comparable store sales down fifteen percent that’s a disaster the question is are things getting better chipotle or
Are they getting even worse because this is a disastrous quarter here it’s really sad to see so let’s go ahead and view this some more so now we’re going ahead and we’re looking at basically what management is saying about you know things here we continue to make steady progress in our sales recovery for the third quarter we are earning back our customers trust
In research demonstrates that our people are feeling better about our brand the quality of food while this year has been a year of varying investment we are now focused on value today we will share our financial and operating goals for 2017 as we we plan to achieve them said steve ells founder and chairman and co-ceo of chipotle so let’s go ahead and look at the
Comparable store trends here monthly comparable store restaurant sales declined declines improved sixteen point three percent from a low of 36 percent in january 2016 imagine that a 36 percent decline they were experienced in it in the month of january which was just a couple months after the cola a situation that is like that might be the worst comparable store
Sales i’ve seen for any restaurant any retailer ever in my entire investing career i’ve never seen a down 36 percent ever but that is what can happen to a restaurant stock when you go through an e.coli situation or something like that unbelievable absolutely unbelievable so let’s go ahead and look at their outlook because the outlook is very important because we’re
Looking toward the future so for 2016 management expects the following to open 222 235 restaurants that’s really awesome comport just so you guys know it’s about 10% growth in restaurants because they have about 2000 currently comparable restaurant sales declines in the low city single digits for the fourth quarter now this is this is big here guys because they had
Been they had been decreasing at you know 10 20 30 percent we even saw at 36 percent so now they’re expecting only single digit declines so it could be 9 percent that could be 1 percent but the fact that they’re now expecting that that’s a lot better because now we’re getting to a spa where usually when you start only declining low single digits then you start
To also break even and then you get back to growth so the fact that they’re only expecting that that that proves to me that things are getting better at tripoli if that proves true of course that things are getting better at chipotle in there on the path to recovery which is going to be big for their future because if they’re gonna just be stuck in this this low
Single-digit loss of business obviously at some point they’ll go out of business i don’t think that’s gonna happen but we’ll see here next up we’re looking at 2017 management expects the following 195 to 210 new restaurants comparable restaurant sales increase in the high single digits this is big guys they’re expecting to get back to high single-digit growth next
Year so not only are they expecting just very very small decrease in this next coming quarter but the next year they expect to get back to growth which is a fabulous thing that’s what we need to see if we’re going to invest in a stock we don’t want to stock this shrinking we need a stock that’s increasing in the future so that’s a very very good sign buy them now
Chipotle is kinda near its 52-week range as far as the lo of it the $352 is little low when i took this screenshot it was 414 dollars and it’s been all the way up to six hundred fourteen dollars that was of course before the e.coli situation happened and actually before that it was even up to seven hundred dollars and that stock was going to the moon before that
Market cap of 12 billion pe of 167 extremely high we have a forward p/e of 44 so what do you guys think i’m gonna say in regards to chipotle this is a very controversial stock am i gonna say it’s and bi am i gonna say it’s not a bi to me chipotle is a long-term buy it’s one of those stocks is one of those rare stocks that you buy it you put in the filing cabinet
And you don’t look at for the next five years or if you do you look at it every once in a while that’s the way i feel about chipotle stock you buy and you just say you know whatever happened the short term happens in the short term i don’t care i’m just freakin buying it and i five ten years down the road this company’s gonna be a lot bigger than they are and all
Those types of things that tripoli i wouldn’t be surprised of the stocks $250 in a few months i wouldn’t be surprised if it’s $550 in a few months in the short term you really don’t know because there’s a lot of controversy is you know are they gonna get back to growth here very soon or they gonna stay in this this slow decline how is their business gonna expand
Here nationally i think there’s huge potential for chipotle internationally it’s a monstrous opportunity the southeast asian kitchen i think it’s a huge opportunity in the united states and internationally and they haven’t even really touched on that business yet they’re getting into the burger business a bit which is is okay i’m not super excited about that much
More excited about the southeast asian kitchen and they also have the pizza place you know they’re they’re kind of expanding out slowly but surely so they have a lot of things going for them they have a lot of things going for them and very very is a very high-end food for the prices they serve them for so i look at you fully i see a lot of opportunity i see a
Great balance sheet i see a company that’s getting trolley more than likely get back to nice growth beginning next year so which next year starts in three months from now so we’re not looking at a very long time away so chipotle is just a buy for me it’s a buy but it’s a long term buy it’s not a you know freak out if it goes down over the next six months or three
Months or whatever because this company i think has extremely extremely strong long-term fundamentals for the company and i’m very confident management the way they handled the coli situation which almost every business almost every restaurant major restaurant goes through at some point in time the way they’ve handled it is better than i’ve seen anyone handle it
Throughout my investing career i hope you guys enjoyed this video today please leave me in the comments section which talked to you guys would like to see broken down next week and if you have not subscribed you may want to i talk about stock market along this channel including this this series every single week talk about business i’m an entrepreneur talk about
Entrepreneurship and we also talk about personal finance a bit and give a lot of personal finance tips on this channel thank you so much for watching guys and have a great day
Transcribed from video
Is Chipotle Stock a Buy? | Chipotle Stock | Chipotle! By Financial Education
