Whining about Chipotle

This makes an interesting psychological study.  Who holds the stock and how they react.   ($CMG last at $278, down 14.5%)  Many conversations below show no interest in discussing the valuation of CMG, but just the price (and if the price is declining, the pitiful management).

Also, note the focus on P/E ratio for valuation.   What about the flaws in using P/Es as a valuation metric?   No discussion about the business, cash flows or discount rate.

CMG will probably trade north of 6 million shares today or about 20% of the 28.5 million outstanding shares.  Where are the long-term shareholders?  One in five investors will sell based on one quarterly report.

If you have done your homework on valuation, then unreflective sellers who are throwing in the towel may mean an attractive price over the next few weeks.

I don’t know much about Chipotle, but management should be able to right the ship OVER TIME–the next 24 months–not next quarter. I don’t own any CMG currently.

Time to pile on (rats falling from the ceiling!):   https://www.bloomberg.com/news/articles/2017-10-25/ackman-s-lost-a-lot-of-queso-on-his-stake-in-chipotle

An interesting article on the struggle within the turnaround efforts.

“Every chain restaurant, he says, goes through this rite of passage. For every success like Starbucks, there are former high-flyers like Baja Fresh and Boston Market that no longer have cultural currency and are slowly fading.
Moran (Chipotle founder) remains confident that Chipotle will not end up an afterthought dotting the strip malls of America, but he preaches patience. “Will we climb out of it and get back to our former greatness? I absolutely believe we will,” he told me in June. “But will that take a year or two or three or four? I don’t know. The full recovery from this is going to take a long time.” https://www.fastcompany.com/3064068/chipotle-eats-itself

  • AlabamaHobo

    Why does a burrito company trades for 70 PE.

    Lots of room all the way down to 15 PE. 

    DowPete

    DowPete    yesterday
    Ackman has been unusually quiet about his position in Shipotle. For someone who is forever whining, the silence is golden. Glad he’s underwater in $CMG.

    Mad

    Mad

    13 hours ago

    200$ may not be that impossible tomorrow or later.

    CowboyFan

    CowboyFan

    13 hours ago

    Overvalued stock , for a burrito company.
  • CowboyFan

    CowboyFan

    14 hours ago

    What a POS! Seriously , this is a $40 stock
  • BB
    BB

    16 hours ago

    Why does almost every retail restaurant or fast food chain trade at 15-25xs earnings and Chipotle get to trade at >60xs? Its still way overpriced, should be $100/share or less. Concept is easily duplicatable and has been many times now. Theres plenty of fast food burrito places out there now..

    Tenley

    Tenley

    10 hours ago

    I want a refund on my burrito. It taste weird…
  •  DaveR
    DaveR

    20 hours ago

    Even a lemonade stand could beat the latest benchmark for CMG earnings. If they miss this bunny forget about it.
  • Jh

    Jh

    14 hours ago

    Fair market value $50
  • joe

    joe

    16 hours ago

    Hundreds of high school students chow down at these restaurants every day. Me too
  • liberal

    liberal

    1 hour ago

    I’m loving this fall, hope it goes on through the day and we see 270s today. Make some mulla on those put options from yesterday
  • CT

    CT

    4 hours ago

    The battle line is drawn at $295 ps. Buyers must buy at this previously held level – otherwise, it is abandoned and a new lower strength level is found. But holding this level will be difficult as it represents a triple bottom.

    My bet is that the shares go lower. Once the dam at $295 is broken, the selling will accelerate and we may end up the day at -20%.

  • Jerome R

    Jerome R

    23 hours ago

    20% short interest on a 25 mill float, see you at $400 after ER
  • Jerome R
    Jerome R

    23 hours ago

    20% short interest on a 25 mill float, see you at $400 after ER
  • S.P.
    S.P.

    17 hours ago

    Owning this stock is like having CMG’s molten cheese poured on
  • george

    george

    20 hours ago

    Bloodbath coming after hours. The bombs start decimating your portfolio at 4:30 PM. Get your shovel out to dig your own grave. Just jump in, we’ll kick some dirt on top of you.
  • Mocula

    Mocula

    13 hours ago

    What was the total compensation for the CEO this year? The small amount of money I lost on this stock, means nothing to the officers. As long as they car drive a fancy car or pay a lot for a douchebag haircut, they will just continue to make excuses and take as much as they can.
  • Robert
    Robert

    15 hours ago

    Jerome, Hope you didn’t get killed too bad. This stock is a pig. Over priced. Should see $250 in a week. Cannot beat same stores off a week quarter to comp. McDonald’s had stores close in Houston and Florida. Face it. Bad food, overpriced, competition. The shorts won’t cover until $275.00.
  • WIZARD1973

    WIZARD1973

    16 hours ago

    I can’t believe they think remodeling the restaurants and raising prices are going to bring people back. I hope they have a better plan than that!’
    • Bay Area

      8 hours ago

      This burrito seller is still trading at insanely high PE. Fools find 300 cheap because they are comparing with the peak of 2015. That was a pure scam by Kramer type people. Giving the mess and slumped earnings, risky low margin business, very specific narrow menu, this stock should be trading at no more than PE =10
    • Ahh Haa

      Ahh Haa

      19 hours ago

      About to be Bill Ackholed.
    • Andre

      Andre

      12 hours ago

      I’m hoping this dips sub $290ish for a quick trade. The most brutal selloff periods are in the first hour of trading. Don’t fall in love with a position whether long or short. Volatility in any stock makes it great to spot a trend and make a great trade.
    • kevin

      kevin

      39 minutes ago

      Spoiled foods. Empty stores. Flopping queso. Run and sell!!!

10 responses to “Whining about Chipotle

  1. You can’t even spell Chipotle correctly.

  2. My problem with the stock is the e coli outbreak of the past. I’m sure it killed the appetite for many potential customers. Buffett says he would much rather lose money than lose reputation.

    • I believe that within the next few years there will be another e coli outbreak unless they no longer provide fresh veggies in their menus. But what is tolerable for the market? Can their execution be better? Certainly.

  3. 9 million shares traded… but that says nothing about longer term holders actually selling. It could have been a bunch of traders and algos repeatedly passing a smaller set of shares back and forth.

    PW: Buffett also likes companies that have problems which are temporary/fixable… this seems like a good example of that to me. Similar to AXP salad oil scandal or WFC with its governance issues.

    Forget about P/E on a stock like this. Their operating cash flows (OCF) are already reverting to a 0.5B annual run rate, and at this rate of improvement, assuming they can put the problems behind them and rediscover some pricing power and operating margins, they may get back to their peak OCF of nearly 0.7B in a year or two. If they continue to buy back 100MM in shares per quarter, then they are trading at something like 10x forward OCF which seems insanely cheap and implies low or even no growth. Peers like YUM, QSR and MCD are at like 20-25xx OCF. Not to mention Price/sales is showing extreme distress compared to peers.

    Low growth and very slow recovery seems already priced into this stock. Doesn’t mean it won’t get worse in the short term though.

    I don’t own shares but looking closely at picking up some LEAP Call options.

    • Hope your thoughtful plan works. And, even if it doesn’t (a capital loss), you learn from your analysis. Either way you win in the long term.

      I suggest you study all past restaurant “disasters” or struggles. MacDonalds, Wendy’s, etc. What happened?

      I do think, that Chipotle offers a good product that will occasionally have food issues if they are handling fresh veggies. The issue is what is tolerable for the market.

      Their goal has to be execution not growth. Now, the investors who paid too high a price for future growth may not agree with my assessment. What is a fair price for this business over the next twenty years?

    • Maybe they can fix it. I don’t know about others but for me anyway, that kind of thing makes me prefer to eat somewhere else. And I used to quite like their food.
      That the valuation is as attractive as axp was I doubt and their business and prospects are very different anyways.
      I will wait and if it drops a lot more I might invest in it.

      • A great article on the struggle within the turnaround effort at Chopotle. See the new link in the poast, Chipotle eats itself.”
        Every chain restaurant, he says, goes through this rite of passage. For every success like Starbucks, there are former high-flyers like Baja Fresh and Boston Market that no longer have cultural currency and are slowly fading.

        Moran remains confident that Chipotle will not end up an afterthought dotting the strip malls of America, but he preaches patience. “Will we climb out of it and get back to our former greatness? I absolutely believe we will,” he told me in June. “But will that take a year or two or three or four? I don’t know. The full recovery from this is going to take a long time.”

        Can the chain be turned around? Yes, but with much longer time than expected and
        as long as they do not lose their UNIQUENESS–Fresh, quality food served quickly.

  4. I used to think Chipotle had found the formula for consistency (and success) but then I started really paying attention to the process and efficiency at different restaurants and, unfortunately they are all over the place. Some of the locations have great food, quick service, clean stores and professional staff while other lack in one or more of those metrics. Haven’t looked at the valuation of CMG but to me the key is whether they have the process down or not. If not, they will be just another “burrito joint”. If they can get it right (especially the health aspects), CMG can really crystalize (and deverve) a position as “the” burrito joint.

    • Agreed! CMG has issues. I am not saying CMG should be bought here, but pointing out how most “investors” on poster-boards spend too much time whining and not enough on thinking about the business.

      If Chipotle focuses on providing a quality food experience–healthy, FRESH, WHOLE FOODS, at a reasonable price, then the company should do fine over time. If the company focuses on trying to grow for growth’s sake because Ackman is under water for his “unreasonable” growth expectation, then the road will be filled with tears for investors.

      Watching the food making process at Chipotle near where I live, I believe the product for the price is a good deal. But, if you use fresh ingredients like peppers, onions, tomatoes, there will be a chance of bacteria causing illness in a tiny percentage of servings–say 2 out of 1 million servings. What is tolerable? To expect no further issues is unrealistic, in my opinion.

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