Chipotle Mexican Grill is yet another stock that can be added to Cramer’s list of favorite growth stocks. Since the beginning of the year, the restaurant chain operator’s stock has been skyrocketing. It had been very difficult to get this stock at a discount, but investors now have an opportunity to buy it at a slight discount thanks to the recent selloff. Cramer wouldn’t buy all at once, though: He suggests buying just a few shares at a time as the stock falls with the greater market.
So what’s to like about Chipotle? Cramer went through his 10-point system for evaluating high-growth plays.
1. Clear Growth Path: Management is forecasting strong same-store sales, Cramer said. It also plans to open up to 165 new locations this year.
2. Market for Products: The fast-food market is huge, Cramer said. Additionally, people are willing to pay up for what they perceive to be healthy food. Chipotle definitely addresses both markets.
3. Competition: Cramer thinks Chipotle will remain competitive because it practically invented the “healthy eating” concept, at least in the fast-food world.
4. Capital to Shareholders: Chipotle doesn’t offer a dividend, but Cramer said management will likely continue to invest in the business, which should ultimately create value for shareholders.
5. International Expansion: The restaurant chain is expanding internationally with plans underway in Europe, Cramer noted.
6. Balance Sheet Strength: Cramer said Chipotle has a very strong balance sheet, which will support growth.
7. Is It Expensive?: Chipotle sells for around 38 times next year's earnings estimates, which might sound expensive, but given the company has a 22 percent long-term growth rate. It means Chipotle has a PEG ratio of 1.72. To Cramer, that’s totally reasonable for such a “high-quality business.”
8. Strong Management: Cramer said the company’s management team, including and especially CEO Steve Ells, is more than capable of executing the growth plan.
9. Secular Growth: Chipotle is a play on healthy eating, which is a strong secular trend.
10. Margin Growth: Cramer thinks Chipotle will be able to maintain its margins, being as its restaurant-level margins increased by 20 basis points last quarter despite higher food costs.