Kaelin Consulting

Mark W. Kaelin

I have over 25 years of experience in the electronic publishing industry. I was an editor for CBS Interactive for eleven years, where I was responsible for acquiring, editing, and writing technical content for daily publication on CBS Interactive properties TechRepublic.com and ZDNet.com. My duties included the recruitment and development of contributing talent. Prior to CBS Interactive, I was an editor with ProQuest for 12 years, where I developed, designed, edited, and maintained an array of university and business school supplemental curricula products. Before ProQuest, I was a public accountant for five years, specializing in tax preparation and in compilation and review engagements. In addition, I have performed independent consulting services over the last 30 years for various business clients.

Strong regional competition may give Chipotle a case of heartburn

I submitted my first article to The Motley Fool on July 10, 2014, but it was rejected. I haven't received feedback on why yet, but I expect it soon. Obviously, this is not my usual writing universe, so I expect to go through a learning curve.


Increased and diverse competition may slow the meteoric growth of Chipotle for the foreseeable future.

Introduction

There is no doubt about it, Chipotle (NYSE: CMG) is a fast growing company with a high-flying stock to match, up over $250 per share in the past year. But there is growing evidence that Chipotle's growth is getting significant resistance from local and regional competitors as it expands into new markets.

Competition from all angles

I live in Louisville, Kentucky. In fact, I was born and raised here and have never lived anywhere else. And I can tell you from personal experience, Louisvillians love food and love to eat out . So it was understandable that Chipotle would enter the Louisville market to tap into this local passion.

Within the last 12 months, Chipotle opened a new location in the eastern part of town, close to my home, where I have been keeping an eye on its performance. So far, despite being in a local hot-bed of retail activity, the location has been slow to catch fire.

With regard to Louisville, and the restaurant scene in the region, Chipotle may have bitten off more than it can chew. What should concern you from an investor's perspective is how many other regions of the country have similar tough competitive environments. The kind of competition that will impact Chipotle's ability to grow at a fast enough pace to support its expensive price to earnings ratio, which is currently over 55.

The competition in the Louisville area is fierce, especially in the Mexican-style restaurant market . There is the well-established local southwest grill restaurant chain Tumbleweed. There are also numerous local mom and pop restaurants which have entered the market recently following the influx of Latin-American immigrants to the area.

And of course, there are more prominently known-names such as Moe's Southwest Grill and Qdoba Mexican Grill, which is a subsidiary of Jack in the Box (NASDAQ: JACK). Taking the fierce competition argument one step further, Louisville is also the headquarters of Yum! Brands (NYSE: YUM), owners of the Taco Bell fast-food chain.

Not worth the risk

The Louisville example should give you pause when considering an investment in Chipotle. While the company has been a tremendous investment in the past, it may have reached its peak rate of growth and it may actually start to slow down. When a fast growing stock starts to show signs of weakness, institutional investors drop out in a blink of an eye, often driving the stock price of a cliff. You don't want to be caught in that avalanche.

At some point in the future, Chipotle may be a good long-term investment, growing steady and paying dividends, but its days of being one of the fastest growing companies and stocks are be over if the Louisville market is a typical example. Chasing Chipotle's stock is not worth the risk.