Could These Stocks Be the Next Chipotle Mexican Grill, Inc. (NYSE/CMG)?

Next Chipotle Mexican GrillOver the past several years since the end of the Great Recession, we have seen a strong upward trend in restaurant stocks such as Chipotle Mexican Grill, Inc. (NYSE/CMG). My stock market analysis suggests there will be more gains to come in this area as the economy recovers, jobs are created, and home prices ratchet higher.

Stock Market Analysis of the Big Winners: McDonald’s & Chipotle Mexican Grill

McDonald’s Corp. (NYSE/MCD) had been a favorite of mine since its turnaround over a decade ago when the shares were trading below $15.00. The stock has had a dramatic run to the $100.00 level. But now I see issues of growth, with the company dealing with a much more competitive environment. McDonald’s has a chance to turn around as it has proven in the past, but it will not be easy.

What has been most interesting is the popularity of ethnic themes within the restaurant sector. One of the top restaurant stocks at this time remains Chipotle Mexican Grill, a restaurant operator offering Mexican foods that are fresh, healthy, and extremely popular with the masses. The only thing is that the stock has had a staggering run and is now a $23.0-billion company. Long-term, the stock is the best-of-breed, but I would be hesitant to be an investor at this juncture.

Chipotle Mexican Grill Chart

Chart courtesy of

Sticking with the Mexican theme, there are other potentially rewarding small-cap stocks that may be better suited at this time for those seeking a higher risk-to-reward investment. Let’s look at some examples of these.

Chuy’s Holdings, Inc. (NASDAQ/CHUY)

The first is Texas-based Chuy’s Holdings, Inc. (NASDAQ/CHUY). The operator of around 60 full-service restaurants offering value-oriented authentic Mexican meals trades at $26.38 with market cap of $469 million. Down from its 52-week high of $32.46, the stock has traded commensurately with the S&P 500, but it’s still worth a look.

Chuy’s has recorded higher revenues in each of the past two years at $204 million and $245 million for 2013 and 2014 respectively. Revenue growth for the next two years is estimated to be around 16.1% and 17.0%, at $284.52 million and $332.77 million, respectively, based on Thomson Financial estimates. These metrics are above the 14% range estimated for Chipotle.

Earnings have also increased in 2013 and 2014. Estimates call for Chuy’s to report higher earnings this year and in 2016.

We are also seeing buying by institutional investors. There is a large short position of about 2.52 million shares representing 18.2% of the float as of July 15, according to Yahoo! Finance.

Chuy’s Holdings Chart

Chart courtesy of

El Pollo Loco Holdings, Inc. (NASDAQ/LOCO)

A larger Mexican restaurant chain that also offers potential is El Pollo Loco Holdings, Inc. (NASDAQ/LOCO). With a share price of $18.58 and a market cap of $709 million, the company operates over 415 company-owned and franchised restaurants offering Mexican-inspired chicken dishes.

The stock is well down from its 52-week high of $41.46 in August 2014 and could be worth a look at the current weakness.

El Pollo Loco Holdings Chart

Chart courtesy of

Trading at 23 times its 2016 earnings per share (EPS) and a price/earnings growth (PEG) ratio of 1.74, El Pollo Loco is cheaper than both Chuy’s and Chipotle. The revenue growth rates are also lower at an estimated 7.7% and 12.3%, to $371.26 million and $417.92 million, respectively, according to Thomson Financial.

At the end of the day, while Chipotle is still the king of Mexican restaurants, Chuy’s and El Pollo Loco are the kinds of stocks that could make sense for aggressive investors.