Chipotle (CMG)

The methods disagree: one places the value today above the price ($30) and the other below.

Today — expensive, no margin of safety: at $30 trades ~2.7% above its value discounted to today (~$30); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Preserva valor: the target price ($37) plus dividends yield just enough to preserve nominal capital, below the required 4% floor.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$18.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($30) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (5.1%/year) than we project (8.7%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$1.8 bn of owner earnings in year 5 (vs ~$2.1 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Resultado operativo (EV/EBIT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Chipotle operates a single reportable segment (company-operated restaurants aggregated into 11 US regions); it is valued at the enterprise level on EV/EBIT over operating income; the company has no financial debt, so the bridge to equity only adds cash (US$0.678 billion). Year 0 is the TTM ended 30-Jun-2026 (rolling grid §5 R1 bis). The base case path starts from the guidance in the earnings release of 29-Jul-2026 (Item 2.02 of the 8-K, §5 R1 prior): low-single-digit comparables for all of 2026 and 350 to 370 new openings (10-15 partner-operated), which combined with the unit growth already under way (comparables +2.2% and openings +9.3% of revenue in the second quarter of 2026) gives revenue growth of ~9.5% in year 1, decaying smoothly toward ~8.0% by year 5 (R2: the compounder-with-runway band, 8-15%, given that the long-term target of 7,000 restaurants in the US and Canada still implies ~73% unit growth ahead over the current 4,042). Margins start from the depressed TTM (EBIT 14.65% versus FY2025's 16.23%, on labor and input inflation, restructuring charges and a legal reserve) and recover gradually toward levels close to FY2025's as the operating leverage of 'Recipe for Growth' is restored. Share repurchases are aggressive (USD 2,783 M TTM, funded partly with balance sheet cash, above real free cash flow) and are modeled via `sharesPath` at a moderate pace sustainable by free cash flow (not at the recent pace, which is not indefinitely fundable), with `bridge.sharesTerminal` reconciling terminal equity against future shares.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $37 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $30, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $37 in 5 years and a required return of 4.5% annually, the maximum to pay today is $30. Against the current market price ($30), the margin of safety is -2.7% (trades above the maximum → a premium is paid) and the total return at that price would be 4.0% annually.

• Entry multiple. The stock trades at an elevated earnings multiple for a business with margins under pressure, reflecting its track record of superior growth.
• Expected 5-year return. The base case yields a return of +4% annually, within the 'Preserves value' range of the method's scale.
• Decline in the stock. The stock's decline reflects the margin compression and comparable sales slump of 2025.
• Margin of safety today. No margin of safety: at this price capital is preserved, but it is not bought below its value.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (123%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Cash generation. TTM operating cash flow of USD 2,328M on revenue of USD 12,424M; solid cash conversion despite operating margin compression.
• Return on capital. Return on invested capital comfortably exceeds the 10% bar, favored by an operating lease model that keeps book invested capital low.
• Reinvestment runway. Stated target of 7,000 restaurants in the U.S. and Canada versus 4,042 currently; a significant portion of unit expansion still lies ahead.
• Earnings quality. TTM earnings are depressed by non-recurring charges (asset impairment, restructuring, legal reserve); adjusted earnings per share held steady year over year.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Chipotle monetizes transaction volume × average ticket at each restaurant, with total growth explained by two drivers: net unit openings (2026 guidance: 350-370, including 10-15 partner-operated) and comparable sales (traffic + menu price increase, currently +2.1% annualized). The digital channel, with 38.3% penetration of food and beverage revenue as of the second quarter of 2026 and 80% of new openings including a Chipotlane, is the structural accelerator of both drivers: it raises convenience (more transactions) and the efficiency of new units (better return per opening).

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Comparable sales. From -1.7% in 2025 to +2.2% in the second quarter of 2026 (second consecutive quarter of transaction improvement), following the 'Recipe for Growth' turnaround.
• Unit growth. 2026 guidance of 350 to 370 new openings (including 10 to 15 partner-operated), on a base of 4,042 restaurants at the end of 2025.
• Digital penetration. Digital sales went from 36.7% of food and beverage revenue in 2025 to 38.3% in the second quarter of 2026, with 80% of new openings including a Chipotlane.
• Execution sensitivity. Growth depends on sustaining the comparable sales turnaround; 2025 itself showed how quickly the market punishes a slowdown.

• Product recurrence and relevance. Frequently consumed fast-casual food; the brand retains relevance with USD 12,400M in growing TTM revenue despite the 2025 comparable sales slump.
• Product differentiation. 'Food with Integrity' positioning free of artificial colors or preservatives; the market recognizes this differentiation even as it attracts competitors claiming to offer something similar.
• Pricing power. The menu price increase (+2.1% in 2025) only partially offsets input and labor inflation; pricing power is real but not unlimited.
• Operating leverage. The operating margin compressed from 18.2% to 15.7% year over year in the second quarter of 2026 despite revenue growth, a sign of negative operating leverage in the short term.
• Behavior through the cycle. Discretionary restaurant spending is cycle-sensitive; the fast-casual category has historically held up better than full-service restaurants due to its value-for-money positioning.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• –Interest coverage (EBIT / interest)no data
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 123% of ROIC
• ✓Value creation (ROIC − 10% bar)+81pp
• !Malinvestment test (capex vs incremental ROIC)Capex/D&A 2.0x
• ✓Float / working capitalFrees up cash $0.3 bn (float / negative WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.8% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Leverage. No long-term financial debt; the balance sheet is essentially free of financial leverage, though it does carry operating lease liabilities for its locations.
• Liquidity. Cash and short- and long-term investments of USD 678M at the end of the second quarter of 2026, after financing aggressive buybacks with the balance sheet.
• Cash generation vs. buyback. The TTM buyback (USD 2,783M) exceeded actual free cash flow, financed in part by drawing down cash and investments on the balance sheet — a pace that is not sustainable indefinitely at the same level.
• Lease liabilities. Operating lease liabilities (USD 5,419M total between current and non-current) are the main long-term obligation, characteristic of the nearly 100% company-owned store model.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Capital allocation. Nearly all excess cash goes to share buybacks (88% of capital deployed, TTM); no dividend, financed by cash generated plus balance sheet reserves.
• Alignment (skin in the game). Low internal ownership (0.45% directors and executives); no controlling shareholder. Alignment rests on the buyback rather than direct ownership.
• Leadership stability. Recent CEO transition: the company granted stock retention awards to key executives following the previous CEO's departure, as stated in the earnings release.
• Internal talent development. Nearly 90% of restaurant leadership roles were filled through internal promotion in 2025, sustaining operational consistency at scale.

• Negative comparable sales through most of 2025 (-1.7% for the year) disappointed market expectations after years of double-digit growth, in a motivated-sellers pattern.
• Real margin compression — not an isolated non-recurring charge — from wage and input inflation (beef, freight), with the operating margin falling from 18.2% to 15.7% year over year in the second quarter of 2026.
• The previous CEO's departure and the leadership transition generated additional uncertainty about the execution of 'Recipe for Growth', right at the moment of greatest pressure on results.

The case does not fully fit a missing-buyers pattern: Chipotle is one of the most followed and covered restaurant chains in the market. It is more of a re-rating of a historically high-multiple business against a year of weak comparable sales and genuine margin compression, which is only now showing signs of reversal (two consecutive quarters of transaction improvement). No margin of safety: at this price capital is preserved, but it is not bought below its value.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -5%/year (-23% total): the margin of safety protects the downside. The bull (+11%/year, +67% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Food safety. The company discloses a risk greater than competitors' from using fresh, unprocessed ingredients and handling raw chicken in the restaurant; an incident could materially damage the brand.
• Dependence on third-party delivery. More than 16% of 2025 food and beverage revenue depends on external aggregators, which can raise fees or prioritize rival restaurants.
• Labor and regulatory costs. By operating (not franchising) nearly the entire network, Chipotle concentrates exposure to wage inflation, labor litigation, and predictable scheduling regulations in the jurisdictions where it operates.
• Input volatility. Prices of beef, avocado, chicken, and other commodities, plus tariffs on international sourcing, can force menu items to be suspended and affect traffic.
• Execution of the opening plan. The 7,000-restaurant target requires sustaining the opening pace despite construction cost inflation and permitting delays; each new unit takes about 36 months to mature.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A narrow moat and ROIC 91% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A fast grower growing 9% at a multiple/growth of 2.4 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 5% (EBIT/EV) + ROIC 91% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 5% vs our 9%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -5%/yr, bull-scenario ceiling +11%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, stable; sources: intangibles, cost advantage, switching costs, efficient scale → partially passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting 5%, within what we project (9%) — the story squares with the numbers.