Revealed!: The Ingredients to Chipotle’s Secret Sauce

Analysts who focus only on Chipotle’s numbers are missing the bigger picture, Cramer said Friday. This story is about “the subjective, the qualitative, not the quantitative.”

Not that Chipotle is incapable of delivering strong numbers. Its third quarter, reported Oct. 21, blew away the analysts’ estimates. Earnings came in at $1.31 a share, 21 cents higher than expected, with revenues up 23 percent year-over-year and same-store sales increasing 11 percent. The consensus for same-store sales was just 8 percent, so that’s a huge beat for Chipotle.

CMG skyrocketed 14 percent the day after it reported, reaching nearly $206 from about $179. Finally, the Street recognized this company for what it was: a fast-growing alternative to the fast-food establishment. And that’s what analysts couldn’t see until just last week. That’s the “subjective” Cramer was talking about. You can’t lump Chipotle in with McDonald’s or Yum! Brands’ KFC. Not when it promotes initiatives like “Food With Integrity,” where only sustainable, natural, organic ingredients are used. This is a place where the food quality comes first and the quantity of earnings places second, which is just what customers these days want.

“You can’t just plug that kind of thing into an earnings model,” Cramer said, “so the analysts therefore don’t know how to slap a price-to-earnings multiple on that piece of the business, even as it’s the special sauce that makes Chipotle so delicious and, frankly, so valuable.”

Chipotle is “trying to change the way people thinks about and eat fast food,” Cramer said. The restaurant is en route to becoming its own lifestyle brand, like a Whole Foods or a Starbucks or Apple in its infancy, and its Danny Meyer-like focus on service and the customer is behind the wheel. Consider this: Company boss Steve Ells thinks of himself foremost as a chef, and only after that a chief exec.

Despite CMG’s enormous 856-percent run since coming public in January 2006, Cramer thinks there’s still room to run. At least if he’s right about the company looking and acting like Starbucks. After five years public, SBUX was up 855 percent, and anyone who bought the stock then caught another 42 percent over the following 12 months—and nearly a quintuple over the next seven years after that before the stock finally peaked.

“I think we’ll see something like that quintuple for Chipotle,” Cramer said, “especially as it’s just starting to expand overseas.”

A previous version of this story misstated CEO Steve Ells' name.

When this story published, Cramer’s charitable trust owned Apple and McDonald’s.

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