Chipotle Mexican Grill, Inc. is a U.S based fast-casual restaurant company. The company is listed on the New York Stock Exchange with the ticker CMG, and it is a part of S&P 500 index. Unlike many other limited service restaurant chains, Chipotle does not franchise and directly operates all the restaurants. As 2016, the company has 2,050 restaurants, mainly located in the U.S. The company operates Chipotle Mexican Grill restaurants, which specialize on Mexican-inspired food items such as tacos and burritos, as well as other non-Chipotle fast-casual restaurants (Chipotle, 2016).
Chipotle was founded by Steve Ells back in 1993 in Denver, Colorado. Since its foundation, Chipotle has been growing rapidly thanks to its business strategy that emphases
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were found responsible for several cases of illnesses caused by E. coli bacteria. Because of the illness outbreak, Chipotle’s public image is severely damaged and its stock price fell drastically. The negative impact of this illness outbreak persisted during the year of 2016: Chipotle’s revenue decreased by 13% and its net income fell by 95% in comparison with the results of 2015 (Chipotle, 2016). In December 30, 2016, Chipotle’s stock closed at $377.32, resulting in a 50% decrease from its all-time peak in August 2015. However, because of its poor financial performance in 2016, at the price of $377.32, Chipotle was trading at a price to earnings (P/E) ratio close to 490 times its 2016 earnings. Although fast-casual restaurant chains usually trade at higher P/E multiples than the conventional fast food chains like McDonald’s, Chipotle’s P/E ratio of 490 is still outrageously high, leading some investors to question if Chipotle is highly overvalued. In order to access the fair value of Chipotle, it seems necessary to examine the strategic outlook of the fast-casual restaurant industry as well as the historical performances of Chipotle relative to its peer