Why Chipotle Stock (CMG) is So Expensive

I read Chipotle ("CMG")'s 10K for the first time the other day. Where have I been!

For years I have ignored the stock because of its very high multiples. I regret that very much. But better late than never.

Here I will share my notes. The 10 second summary is that Chipotle has decades of growth runway ahead of it, and it has not even started pulling some of the upside levers yet.

This is clearly a "buy every dip" stock.

Notes

• Per store revenue and margin normalization - this has been going on the past few years.
• "We are confident we can get back to volumes in the $2.5 million range, which is - those are the volumes we had just a few years ago."
• "We think we can go beyond that. The idea that digital was only 5% or 6% of sales back in 2015 when we hit these peak volumes, digital is now at 18%. It's the fastest-growing part of our business. So we have assets today that we didn't have back when we were doing $2.5 million."

• Margin expansion - increased digital sales drives operating leverage.
• "Ultimately, long-term guidance, of course for AUVs and margins to rise in concert. 
• Management has noted each incremental $100,000 in sales volumes translates into 100 basis points of restaurant margin. 
• Chipotlanes. This is CMG's mobile pick up lanes. This requires a shift in real estate strategy as most of its current real estate is not end-caps but in-line sites. The newer restaurants make good candidates for Chipotlanes though.

• US store expansion. They have about 2,600 stores, mostly in US. Management is confident that it can do 5,000 stores in U.S. I believe them.

• International presence. Almost none right now!
• They only have 39 international stores in Canada, Europe. 
• CMG has no presence in Asia! From my own anecdotal observation, Chipotle will likely be hit among East Asian countries. I have personally observed people who pretty much only eat Asian food becoming big fans of Chipotle's burrito bowl. This is because those cultures are accustomed to rice based diets, and Chipotle's burrito bowl is a familiar format. 

• Franchising. They are doing none of this and they don't need to. For now quality control is key so CMG should own the stores. Nevertheless franchising is something that can really juice ROE down the line.

• No financial leverage. This is another lever that Chipotle can pull when it matures - perhaps 30 years later!

Chipotle is basically sitting on a gold mine, it just have to not mess up! As long as the company keeps up its quality and reputation (which management is carefully doing), the market is theirs to lose. Unlike the burger/pizza/fried chicken fast food market, Chipotle's market is vast with decades of runway ahead, and CMG dominates.