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.

Shake Shack and Chipotle: How Do Valuation Multiples Look?

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.

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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