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No. of Recommendations: 3
any thoughts

I bot the stock higher than here on sentiment but that was predicated on:

1) the strong balance sheet, which remains in place

2) muted margins that would recover, though this looks to be muted longer than expected due to traffic issues

3) a near 10% unit growth rate which is now a 6% growth rate for 2018 and no acceleration at best until late 2019

4) some odd comments about adding menu items (frozen margaritas? really?) which are at odds with history and then hopes for catering which all about add sales at the margins and is reflective of what slower growing companies focus on


5) hopes for an expanding valuation, which seems dicey

Most estimates are around 9.00 for next year, or 275/9 or 30.5x. This is absurdly high for most restaurants, but CMG is a good concept which generates strong returns.

So the sentiment argument is kinda dead unless they do a magical 10% comp one never know, but it seems less likely than it used to be.


If you switch to owning CMG as a business

Using some basic assumptions

If they do 4.4b in sales (now) and 5% net gets you to 220m
At 7% it equals 308m
Add 5% unit growth and 2.5% comps and sales might be 4730
or 5% at 237m and 7% at 331m
They did 10.8% at the peak. 5% is very realistic, 7% more challenging

So at 7400 (cap sans cash, more or less)
7400/220 = 33.6x
7400/308 = 24.1x
7400/237 = 31.2x
7400/331 = 22.4x

I'd pay 20x without question
think they can continue to expand
and it generates a lot of cash

But then again, 6% unit growth, muted comps, and clearly a fast grower valuation seems unlikely

they are doing the first price increase in a lot of the chain in Nov which ought not to be felt much - they are still pricing just fine IMO and an bump-up won't mean much


I have a small dink and not inclined to add or subtract
I do think sales can grow 5% to 10% for a while...
...which makes me more likely to be patient at this position size
position size is...0.1% to 0.2%

and I know - for 0.1% to 0.2% who cares, but I care
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