• Chipotle is still a good company, but overvalued.
• Analysts are expecting a quick return to normal, but a recent visit indicates that won't happen quickly.
• Valued on fundamentals, the stock is a buy assuming the current quarter is a miss.

While a friend was in the hospital recently I took her son over to Chipotle Mexican Grill (NYSE: CMG).

Our local outlet near Atlanta is no longer as crowded as it once was, but it was busy at lunch time. We were both able to get a good, filling meal for about $10, including a drink, within 10 minutes of our arrival. We left happy.

Chipotle's problems with e.Coli bacteria last year, however, demonstrated that there is a risk to fresh food. In the near term McDonalds (NYSE: MCD) has been a big beneficiary, and Chipotle has lost nearly 30% of its value. But its March quarter was probably a bottom, and sales then were just 15% below where they were a year earlier, with the company reporting a loss of $26.4 million, 88 cents per share, on sales of $834 million.

The June quarter, due to be reported July 27, will demonstrate whether this is a V-shaped bottom, as analysts currently expect, or a more long-lasting problem. Analysts are expecting revenues of  $1.13 billion and a profit of close to $35 million, or $1.06 per share. My own guess is you're looking at $950 million in revenue, running at break-even.

That failure doesn't mean you give up on the company, however. The road back has started. It's just going to be longer, and slower, than investors now anticipate. Expectations need to be tempered with reality. It will take time to achieve last June's $140 million, $4.05 per share, earnings on revenue of $1.2 billion. Based on what I saw in my recent visit, I think you're going to see a miss, and another hard fall in the stock price, because it's currently fully valued with a Price/Earnings multiple over 46.

Once that happens, consider buying.

Investors, in other words, are expecting a snap back when Chipotle actually faces a much harder road to regaining mass acceptance. What social media gives it can take away and the company is no longer the darling of millennials it once was.

This is an important point. Restaurant chains usually get just one shot at being hot. Once they cool off, you evaluate them strictly on fundamentals.

Krispy Kreme (NYSE: KKD), for instance, is a doughnut shop now being acquired by JAB Beech, a German conglomerate, for $1.35 billion. It was a hot stock early in the last decade, a 2003 peak of $42/share after two stock splits. Once it lost favor, however, that favor never returned. The JAB take-out price is about half that 2003 high.

Or consider Shake Shack (NYSE: SHAK), a New York based hamburger chain that shot up to almost $93/share after its IPO last year. It still sells for over six times revenue, but now that the heat is gone that's $35/share.

When the speculation ends, it does not come back, and you have to price a restaurant near its fundamental value. McDonald's, which is well-run, and has had a nice run-up since Chipotle's problems began, now has a Price/Earnings multiple of about 24, barely half that of Chipotle. Assuming Chipotle continues on its present recovery path, next year's earnings should give it about that multiple.

That's fair value.