Chipotle Mexican Grill, Inc. (NYSE:CMG) is trading around $310.43 per share. This stock is a favorite for many investors because it has performed very well over the past few years. However, as we have experienced with Internet stocks, real estate and tulips, nothing goes to the sky forever. It will be hard for this stock to repeat the gains of the past 2-3 years, in which it rose from below $50 to current levels over $300. The 50-day moving average is $313.66 and the 200-day moving average is $269.79. The earnings estimates for 2011 are about $6.83 per share and $8.65 for 2012. This puts the PE ratio at well over 40 which is high for the restaurant sector. I think the high PE ratio and the fact that insiders have been repeatedly selling shares are red flags for investors to consider. Also, as this has been a favorite stock for momentum traders and chart lovers, it makes sense to realize that the 200-day moving average continues to rise closer to the 50-day average which means any miss on earnings or guidance could quickly make the chart look ugly if the stock wasn't able to hold the 200-day level. Chipotle is a great company but what you pay for a stock matters, and those paying over $300 per share are not likely to see the gains that investors who paid less than $50 per share have seen. Here is a look at some oversold stocks that might be able to outperform Chipotle shares over the next couple of years:
F5 Networks (NASDAQ:FFIV) shares are trading at $76.03. F5 provides solutions that optimize networks. The 50-day moving average is about $92.94 and the 200-day moving average is about $109.31. These shares have traded in a 52 week range between $69.01 and $145.76. Earnings estimates for FFIV are about $3.72 per share in 2011 and $4.35 for 2012. In July, this stock was trading for about $110, and then slightly disappointing earnings and a market correction hammered this stock down about 40%.
How F5 might outperform Chipotle shares: Sometimes the best performing stocks turn into laggards and stocks like F5 can possibly outperform due to low expectations. The PE ratio is much lower for F5 compared to where it was recently and that could allow it to see multiple expansion.
NGP Capital Resources Company (NGPC) shares are trading around $6.70. NGPC is an investment company specializing oil and energy companies. It uses gains and proceeds from these energy related investments and loans to distribute a generous dividend to shareholders. The 50-day moving average is $7.75 and the 200-day moving average is $8.56. Earnings estimates for NGPC are about 76 cents per share in 2011.
How NGPC might outperform Chipotle shares: NGPC stock has dropped with the market and now offers a rich yield of 72 cents per share which is equivalent to a 10.8% yield. This stock is oversold and is likely to rebound soon, so any investors buying around this level is likely to see the stock value rise and collect a dividend that is hard to find anywhere.
Autodesk, Inc. (NASDAQ:ADSK) shares are trading at $26.13. ADSK is a leading provider of design software. The 50-day moving average is $32.65 and the 200-day moving average is $38.88. Earnings estimates for ADSK are about $1.69 per share in 2011, and $1.98 for 2012.
How Autodesk might outperform Chipotle shares: Autodesk shares have come down significantly in the past few weeks and now trade for about 13 times 2012 earnings estimates. Historically, Autodesk shares have traded at higher multiples, so this stock could be set to rebound.
Travelzoo, Inc. (NASDAQ:TZOO) shares are trading at $34.18. TZOO is a Internet company that offers travel and other deals online. The shares have traded in a range between $15.70 to $103.80 in the past 52 weeks. The 50-day moving average is $54.25 and the 200-day moving average is $55.13. Earnings estimates for TZOO are about $1.45 per share in 2011 and $2.04 for 2012. This stock was trading around $85 in late July and plunged after earnings were released.
How Travelzoo might outperform Chipotle shares: Travelzoo is expected to grow faster when compared to Chipotle and yet the stock trades at a much lower multiple. If Travelzoo posts improved results next quarter, the stock should jump higher.
Ensco PLC (NYSE:ESV) shares are trading at $47.18. Ensco operates drilling rigs worldwide. The shares have traded in a range between $39.51 to $60.31 in the past 52 weeks. The 50-day moving average is $49.13 and the 200-day moving average is $52.44. Earnings estimates for ESV are about $3.60 per share in 2011 and $5.90 for 2012. The dividend is $1.40 per share which is equivalent to a 3% yield.
How Ensco might outperform Chipotle shares: Demand for oil rigs is likely to rise in the future and profits are expected to rise to nearly $6 in 2012. That's not much less than what Chipotle will earn in 2011, and Ensco shares trade for a fraction of Chipotle.
The data is sourced from Yahoo Finance and Stockcharts.com. The information and data is believed to be accurate, but no guarantees or representations are made. Rougemont is not a registered investment advisor and does not provide specific investment advice. The information contained herein is for informational purposes.
Disclosure: I am long NGPC. I may buy ESV shares soon.