Since the recession, the stocks of Chipotle Mexican Grill (NYSE:CMG) have seen quite an increase. The stocks of burrito chain have increased by 1000 percent since 2009. A lot of investors are worried that the stocks would have a pullback in the coming quarters, so let’s just examine and analyze them.

The stocks of Chipotle Mexican Grill (NYSE:CMG) are being traded at quite a high price, especially when compared with a P/E (price to earnings) ratio of 51. However, the price is justified if the future of the company can be warranted. The management of Chipotle Mexican Grill (NYSE:CMG), at the first initial public offering of the company, announced that it plans on opening up around 4000 restaurants in the region of United States. Till now, the company has opened up around 2000 restaurants. The sales in company’s restaurants are soaring, which indicates to the fact that the country has a much more demand for Chipotle food than what the management estimated.

Chipotle Mexican Grill (NYSE:CMG) should aim at 10,000 in order to beat the other mega food chains in the country. It is important to mention here that Subway has around 25,000 restaurants whereas McDonald’s has approximately 15,000 outlets in the U.S. The company will see a slower growth than that of Subway and McDonald’s, for it does not have the franchising benefit right now.

Many investors are unhappy with the guidance report that the company has posted for its upcoming year. However, what they are forgetting is the fact that Chipotle posted similar numbers for the current year, which proved quite low. The comps would be modest, for they do not enjoy the advantage of price increase.

With Standard & Poor’s 500’s P/E at 20, the food market is quite over-valued these days. It is important to mention here that the industry average stands at 15.5. Chipotle Mexican Grill (NYSE:CMG) can benefit from this over-valuation provided that it plays its cards right.

Market experts do not expect the company to post very high numbers this year. However, the stock is still expected to outperform the market.

Chipotle Mexican Grill (NYSE:CMG) is a company with an extraordinary growth rate. The best thing for the investors to do is waiting and seizing the opportunity when the company introduces it buyback program.

Chipotle recently posted its figures. During the third quarter, the company saw an increase of 31.1 percent in its sales. The same-store sales also saw an increase of 19.8 percent.  Such figures exhibit nothing but the amazing capabilities that the company’s management has and the mind-blowing strategies that it employed in order to increase the sales.

Coming to the stock prices of Chipotle Mexican Grill (NYSE:CMG), the company, on the last trading day of December 1, 2014, started its stocks at a price of $664.66 and closed at a price of $660.88, after hitting the highest price of $670.20. The company has a total market capitalization of $20.54 billion with a P/E (price to earnings) ratio of 51.53.

Even though Chipotle (NYSE:CMG) brought in good earnings in the third quarter, its shares traded low by 7 percent. Analysts claim that it was the result of its vague goals for the next year. The company claims that it’ll make revenue in the single digits but also claims it can accumulate up to the mid-teens. Giving contrasting statements hasn’t really helped the company. The investors are obviously wary of the confusion that is blurring Chipotle (NYSE:CMG)’s future goals; or perhaps the company isn’t quite sure itself. One of the main reasons Chipotle (NYSE:CMG) has been having a good run with the finances is because of its decision to raise prices in the second quarter.

The decision stayed till the third quarter resulting in large bills for the customers and large checks for the company. But that didn’t bother the customers who were more than happy to pay anything reasonable to get their hands on the bloated burrito. In fact, the major boost came from the influx of customers, resulting in 11.3 percent growth. During the previous quarter, food prices hiked all around by 34.3 percent. The decision to raise prices also helped in dealing with the food price hike all around. Analysts think that the price hike didn’t affect sales much, hence Chipotle (NYSE:CMG) shouldn’t ever bet on a price hike to change things.

Chipotle (NYSE:CMG) said that it would be making less in the fourth quarter as compared to the third quarter and this assumption was made due to the consistent trend of same store sales turning mellow as the quarter progresses. Chipotle (NYSE:CMG) clearly isn’t relying upon price hikes and other strategies for the future at all. Chipotle Mexican Grill, Inc (NYSE:CMG) plans to open around 200 new restaurants, bringing up its grand total to 2000.

Chipotle Mexican Grill, Inc (NYSE:CMG) is known for its customer experience and quality food as the company never compromises on anything. Chipotle Mexican Grill, Inc (NYSE:CMG) is rising fast and is certainly learning from the mistakes made by other fast food joints such as McDonald’s which has apparently traded its food quality for lower cost. Chipotle Mexican Grill, Inc (NYSE:CMG) has been ranked number 1 by several surveys and if things keep going smooth, Chipotle Mexican Grill (NYSE:CMG) might just become the new McDonald’s, or perhaps even bigger and better.

McDonald’s (NYSE:MCD) has had a very tough year because of a few controversies and other emerging competitors in the market. The fast food giant will reveal its earnings report on the 21^st of October. According to forecasts and estimates the third quarter report will reveal revenue of $7.21 billion. This figure is less than its revenue of $7.32 billion last year.

McDonald’s (NYSE:MCD) has been facing a slump in its sales not only because of its dwindling customers, but also because of the China meat supplier controversy, which caused a loss in revenue generate from Asia. McDonald’s (NYSE:MCD)’s shares still stand strong at the stock market with on 5.9% year-to-date loss.

McDonald’s (NYSE:MCD)’s expected third quarter loss will be its third loss in a row. It will be interesting to see if the fast good chain could give some optimistic forecast for its future status both in the US and overseas. The good news for McDonald’s (NYSE:MCD) is that if the losses for the quarter are not too heavy then it might still be able to retain its investors for some time.

Other than McDonald’s (NYSE:MCD) most of the big restaurants are likely to pose good sales and earnings. According to market cap the 20 of the biggest restaurants in the industry are likely to show an improved EPS for the quarter; the improvement is expected to be by 15.8% on average as compared to last year. As far as revenue goes it is expected to go up by 4.1%.

One of the successful restaurants is expected to be Chipotle Mexican Grill, Inc. (NYSE:CMG). Analysts are expected it to post $1.06 billion in revenue, which will be an increase by 27.8% from last year.

Buffalo Wild Wings (NASDAQ:BWLD) on the other hand is expected to reveal a jump up in its revenue by 17.7%.

Chipotle Mexican Grill, Inc. (NYSE:CMG) will announce its third quarter earnings report on the 20^th of October.

Here is a snapshot of what analysts believe the report will show;

• Chipotle Mexican Grill, Inc. (NYSE:CMG) earnings are likely to be $3.83/share, which will be an increase by 44% from last year.
• Same-store sales for the restaurant is estimated to show an increase by 16.6%, which were up by 17.3% in its second quarter.

Pressure will be on Chipotle Mexican Grill, Inc. (NYSE:CMG) because if the restaurant fails to meet these estimates that it would be difficult to say if its investors will be generous in giving the restaurant another shot.

Other restaurants that will be revealing their latest quarter’s results include Dunkin’ Brands Group Inc (NASDAQ:DNKN) and Dine Equity Inc (NYSE:DIN). Whereas Yum! Brands, Inc. (NYSE:YUM), Domino’s (NYSE:DPZ), Taco Bell, KFC and Pizza Hut have already reported their earnings for the quarter.

However in the hype over El Pollo Loco, another company’s IPO was all but ignored when it was first released and performed badly compared to El Pollo Loco’s IPO.

Both companies are restaurant chains that function in the fast casual dining portion of the market. Both companies are constantly compared to the likes of Chipotle Mexican Grill (NYSE: CMG) to follow in its success, and trying not to imitate the shortcomings of Potbelly Corp (NASDAQ: PBPB).

What is strange about this is that recent occurrences in the industry show that investors should prefer the Mediterranean-inspired restaurant that is Zoe’s Kitchen. While El Pollo Loco was showered with love from investors and most likely underpriced its IPO, its stock’s upward trend are prompting investors to ignore the company’s pre-IPO figures.

What Is So Special About El Pollo Loco

El Pollo Loco restaurants feature a Mexican inspired menu, specializing in fire grilled citrus marinated chicken. The business has over 400 locations across the nation, and plans to hit 2,300 locations in the future. However, the company only owns 168 of these locations; the others are franchises in the states of Arizona, Texas, California, Colorado, and Utah.

In the first quarter of the 2014 fiscal year, the company’s sales increased 7.2%, but revenue only increased 5.7% to $81.4 million.

Another concerning point is that in 2011, the company has 412 stores open for business. Since then, El Pollo Loco has closed 11 of those stores, and currently operates on 401 locations.

Unfortunately, El Pollo Loco is riding more on hype than its real achievements. Recent financial reports is most likely not able to grow like Chipotle. The company has plans to grow the store base at roughly 10% per year, and will open only 8 to 10 store fronts by the end of this year.

Zoe’s Kitchen Has Better Potential For Growth

Zoe’s Kitchen’s stock has done well ever since its initial public offering. However, the company has yet to see the incredible gains and hype that immediately follow the first day after the initial IPO price of $15. The stock closed its first day of public trading at roughly $25, and now trades at the price of $29.

El Pollo Loco priced its IPO at $15 as well, and is now priced at $38. Ironically, Zoe’s Kitchen is performing better in terms of sales growth, and provides more potential for long term growth with a much smaller store base.

At the end of 2013, Zoe’s Kitchen had only 102 stores in operation, and plans to increase that number to 130 by the end of this year. The company’s long term goal is to have 1,600 stores in operation, which is quite a conservative goal when compared to Chipotle’s expectations. Chipotle already has over 1,600 stores open.

Revenue is also surging at the company. In the first quarter of 2014, the company posted a 47.4% gain. Comp sales increased by 5.7%. However, the company’s net loss was $0.02 during the first quarter. For the full year, analysts expect an overall profit, and a slight improvement of $0.07 for the year 2015.

Conclusion

Investors and analysts believe that Zoe’s Kitchen is on track to be the next Chipotle for the main reason that it fits into a different food segment in the healthy eating trend. It is concerning that the pre-IPO filings will release an additional 4.6 million shares.

The advice for investors is to pullback on the El Pollo Loco hype, especially when Zoe’s Kitchen has a valuation of $530 million with predicted revenue to rise above $200 million next year.

Banks including Jefferies, Baird, and Morgan Stanley helped the company with the process to become a publicly traded firm.

El Pollo Loco is a rapidly growing fast food restaurant chain. The company runs in the limited service restaurant segment, and offers a combination of high quality food with convenience and food to provide an affordable and quick casual dining experience. The food is prepared in an open kitchen and is marketed to be a healthier alternative to other fast food establishments.

First opened in 1980, the restaurant chain has 401 locations in the states of Arizona, California, Nevada, Texas, and Utah.

The valuation for El Pollo Loco in relation to the market leader makes the company attractive to investors. However, the company has not shown real growth in its store and customer base. It is less profitable and is showing slower growth rate of store sales than the market leader.

Valuation

It is important to note that El Pollo Loco functions in the fast casual dining segment of the market, not the fast food segment. The average revenue that a fast food restaurant can expect to bring in from one sale is between $3 and $8, while that of a fast casual restaurant can expect between $8 and $12.

According to industry experts, the limited service restaurant business involves an upfront payment and average sales of $3 to $12. The industry revenue was $193 billion in total last year in 2013. Within that space, Mexican and chicken menus did well, driven by the large Hispanic demographic in the United States as well as the trend toward healthier fast food. According to the US Census Bureau, about 53 million residents of the United States are Hispanic, and that figure is slated to grow to 79 million by 2030.

El Pollo Loco faces intense competition in this specific portion of the market from Chipotle Mexican Grill (NYSE: CMG).

For last year 2013, El Pollo Loco posted sales of $314.7 million, which was a 7.2% increase from last year. However, the net loss was $16.9 million for 2013, which was a huge increase from the $7.9 million from the prior year.

Growth in revenue for the first quarter of this year 2014 was 5.8% to $81.4 million. The company improved its operating performance and decreased interest costs, which yielded a net profit of $5.5, compared to the break-even revenue last year.

Prior to the company’s IPO, El Pollo Loco operated with a total debt of $289 million. The funds from the IPO will knock off $107 million from that figure, and reduce the company’s debt to about $180 million.

After to its IPO, the company’s shares are now valued at $24.03 per share and the company’s valuation has climbed to $860 million. This means that the business is valued a 2.7 times its sales. If we take the $5.5 million from the profits in the first quarter as well as earnings that could increase to $25 to $30 million, the shares could trade at 30 times the company’s earnings.