### What are those burritos worth?

I did some quick number calculating on Chipotle:

Let's assume that for 10 years, the company grows at 20%. (It is growing much faster than that right now but it won't forever)

EPS in their S-1 (online) was $1.27.

So, at 20% growth in 10 years, $1.27 is $7.86 per share in earnings. Let's say that Chipotle has a multiple of 30 at that time. That would put the share price at 235.91 in 10 years.

Wow, you say! Wait a minute, we need to move that value into today's money. What discount rate should we use? I say let's use 15% - a little higher than the expected S&P return, so this is conservative and makes the number less risky.

So, using 15% as the rate, we get a share price of 58.31. So, the burritos are worth 58 bucks a share if you want to earn 15% per year if Chipotle grows at 20% per year for 10 years, and the multiple is 30 in 10 years (Starbucks still has a 50 multiple and Panera has a 40 multiple).

So, 58 bucks? Maybe. This is a bit of a fly-by-the-seat-of-my-pants calculation, so you don't want to pay that much. But, in the $20's, if Chipotle gets there, the stock could be a steal. Rest assured I'm watching the IPO!

## 3 Comments:

I get $64 in a two-stage model, assuming 20% growth for 10 years and 6% (S&P 500 historical average) growth thereafter, and a discount rate of 15%. I like 15% and use it myself, that equates to historic 10YT yield + historic M3 inflation.

If you used the average S&P 500 total return of 11% for the discount rate, you'd get $67 for Chipotle.

However, I refuse to use anything in a DCF other than historic S&P 500 growth past the 5 year mark - so a two-stage with 20% for 5 years and 6% thereafter gives you $38.

I'll watch the IPO but not too expectantly ...

Interestingly a 6% growth and 15% discount rate sets the historic S&P 500 at about 12 PE - and an 11% discount rates sets it at 21 PE.

The offer price is in the 15 range...I wonder where it is going to open?

http://biz.yahoo.com/ap/060126/chipotle_ipo.html?.v=4

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