If you’re looking to spice up your portfolio should you head for Chipotle?
The Mexican restaurant chain had been a phenomenon with lines going out the door in some New York City locations as hungry patrons returned time and again for their signature burritos and chunky guacamole.
However the stock hasn’t been nearly as hot as it’s signature salsa. In January the stock was trading at around $127, but now shares of Chipotle Mexican Grill are way off that level.
In July '08 the company posted earnings that fell short of analysts' average forecast of 75 cents per share on revenue of $343.9 million, according to Reuters Estimates. Part of the trouble is food inflation.
“I don’t see anything alleviating food inflation as we move forward,” says Chipotle CFO John Hartung on Fast Money. If anything it seems food inflation will tick up a bit.
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That translates to increased costs but Hartung doesn’t expect increased food costs to reduce his margins. “Our business is very different (from rivals) and despite the food inflation we still have very high margins at 22%. We're able to find other efficiencies that allows our margins to hold-up.”
The company also believes it provides a unique value in a tough economy. “During these tough times customers get a great value at Chipotle because they come in and have a meal made from very high quality ingredients that typically you’d have to go to a high end restaurant to find,” explains Hartung.
I agree that Chipotle makes an amazing product but I wouldn’t buy the stock, says Jeff Macke. (Neither would Joe Terranova or Guy Adami.)