Sep 24, 2020
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Does Chipotle’s Rally Make It A Better Bet Than Starbucks?

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NEW YORK CITY UNITED STATES – 2020/02/20: American fast casual restaurants chain Chipotle Mexican. Chipotle Mexican Grill s stock (NYSE: CMG) has grown 300% since the end of 2017 while Starbucks stock (NASDAQ: SBUX) has grown by 38%. This despite the fact that Starbucks has better profit margins and geographical reach than Chipotle

Does that make sense? We don t think it does and believe that Starbucks is an improved investment currently

 

Our dashboard Chipotle vs. Starbucks: Does The Stock Price Movement Make Sense? has the underlying numbers. Starbucks revenues have an improved base and have grown by 18% from $22. 4 billion in FY 2017 to $26

5 billion in FY 2019 (FY ends in September). This compares to a 25% rise in Chipotle s revenue from $4

 

5 billion in 2017 to $5. 6 billion in 2019. Starbucks profit margin is largely steady and was recorded at about 14% in FY 2019 (The increment in margin seen in 2018 was because of one-time gain as a result of acquisition of a joint venture)

Meanwhile Chiptole s margin has been fluctuating over the previous couple of years and was recorded at about 6% in 2019

 

Additionally the P/E multiple of Chipotle has seen a sudden growth in recent months and is at 93x currently and has run out of room to grow. Meanwhile Starbucks P/E multiple has been comparatively stable through the years from 27x in 2017 to 29x in 2019

It has fallen to 26x currently because of the uncertainty of Covid-19

 

How Do The Core Businesses For Chipotle And Starbucks Compare? Let s inspect the core business prospects a bit more closely. Chipotle began as an area that serves food fast but doesn’t have a typical fast-food experience

The company has seen a gradual improvement in revenues and margins post the 2016 E

 

coli crisis. The corporate has been affected by the coronavirus outbreak as most restaurants – especially in the U. S. – worked on take-out-only mode for a huge period of Q2 2020. However the company does benefit to an extent from its digital initiatives as Digital sales accounted for 60% of Total sales in Q2 2020

The company had 2

 

7K restaurants on the end June 2020 with greater than 98% contained in the US. PROMOTED UNICEF USA BRANDVOICE | Paid Program Inside Look: How COVID-19 Is Deepening The Migrant Crisis In Honduras Grads of Life BRANDVOICE | Paid Program 5 Ways Employers Can Support Black Employees: A Young Leader s Advice Civic Nation BRANDVOICE | Paid Program VT Engage Rally The Youth Vote On Campus Starbucks sells a spread of coffee and tea products under the flagship Starbucks Coffee brand

The company has seen an excellent improvement in its revenues over the previous couple of years while its profit margins have remained steady

 

It has been affected by the coronavirus outbreak as most restaurants – especially in the U. S. – were confined to take-out-only mode for a huge period of Q2 2020

Starbucks also benefits from its geographical diversification with greater than 32K restaurants across 83 markets on the end of June 2020. While Starbucks appears to be like an improved bet when compared with Chipotle because of better diversification bigger revenue base and better profit margins still want out-performance? Try guessing the % returns for our Pershing-inspired portfolio – in accordance with billionaire Bill Ackman s firm Pershing Square – vs

the S&P over the last 1 week 1 month 3 months YTD or perhaps 3 years

 

Our portfolio combines high growth quality and risk mitigation criteria in a desirable way. For greater insight in to the Food & Beverages space check how Dunkin Brands is placed to weather a Covid-19 recession

See all Trefis Price Estimates and Download Trefis Data here What s behind Trefis? See How It s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product R&D and Marketing Teams

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