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Shake Shack and Chipotle: How Do Valuation Multiples Look?

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Jun. 19 2019, Updated 4:17 a.m. ET

Valuation multiple

As the graph below shows, Shake Shack (SHAK) has been trading at a higher valuation multiple than Chipotle Mexican Grill (CMG). SHAK is still in the growth phase and has a considerable scope to expand, which has been valued highly by the market. The scope for expansion and its higher average unit volume have allowed SHAK to trade at a higher valuation multiple. The surge in SHAK’s stock price since the beginning of this year has led to a rise in its valuation multiple. As of June 17, the company was trading at a forward PE multiple of 106.0x compared to 62.3x at the beginning of the year.

Also, on the same day, SHAK was trading at 117.9 times analysts’ 2019 EPS estimate of $0.57, and 94.5 times analysts’ 2020 EPS estimate of $0.72 with its EPS expected to fall by 19.3% in 2019 and to rise by 24.8% in 2020.

The surge in Chipotle’s stock price since the beginning of this year has also raised its valuation multiple. On June 17, the company was trading at a forward PE multiple of 49.2x compared to 36.1x at the beginning of this year.

Also, on June 17, Chipotle was trading at 56.0 times analysts’ 2019 EPS estimate of $13.06, and 43.6 times analysts’ 2020 EPS estimate of $16.76 with its EPS expected to rise by 44.2% in 2019, and 28.4% in 2020.

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Analysts’ recommendations

Analysts favor a “hold” rating for both Chipotle and Shake Shack. Of the 32 analysts that follow Chipotle, 46.9% prefer a “hold” rating, while 34.4% are in favor of “buy” recommendations, and 18.8% are in favor of “sell” recommendations. Analysts have set a 12-month price target of $688.0 for Chipotle, which implies a fall of 6.0% from its stock price of $731.65.

Of the 11 analysts that follow SHAK, 63.6% are in favor of a “hold” recommendation, while 27.3% are favoring a “buy,” and 9.1% are favoring “sell” recommendations. On average, analysts have given SHAK a 12-month price target of $60.75, which implies a fall of 10% from its stock price of $67.51.

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