Entering text into the input field will update the search result below

Millennials: Buy Chipotle Today, Retire Happy

Billy Duberstein profile picture
Billy Duberstein
1.45K Followers

Summary

  • Case Studies not only of prior food incidents but of prior “broken disruptors” indicate Chipotle is more likely a grand-slam from here rather than strikeout.
  • These cases: Starbucks ‘07, Netflix ’11 , Ulta ‘13, and Pandora A/S ’11, indicate stock prices trough for roughly a year. We are 4-5 months in.
  • Warren Buffett’s investments in Wells Fargo, GEICO, and American Express were made during “disasters”.
  • Multiples are only shortcuts to intrinsic value, which is the PV of all future cash flows.
  • CMG is still highest on the “Speed, Value, Quality” scale and customers should return eventually.

This past weekend at Berkshire Hathaway's Annual Shareholder Meeting, Warren Buffett, when asked about his own investing skills, referred to "pattern recognition," in certain businesses and scenarios. I have identified several interesting cases that are analogous to Chipotle's predicament, as I think it very helpful to look at prior case studies - not food safety incidents (although we'll get to those) but recent cases of "broken growth stocks." In tracking the long term the performance of similar disruptors that had terrifying collapses, analogies are very interesting.

2007: Starbucks (SBUX) became a tired brand and its expansion had led to a decline in quality after Howard Schultz left. Having traded at 50x earnings in 2007 and a 25 billion dollar market cap, the stock plunged from $18.88 a share to around $4.50 (split-adjusted), though this drop was augmented by the crash of 2008. The P/E fell from 50 to 20, and many thought the best days were over.

But Howard Schultz returned, and, while it took a while, his reinvestments in the business eventually reinvigorated the brand. Since January of 2009, the stock is up 15x, for a 46% annualized return.

2011: Netflix (NFLX) had a self-imposed disaster when it simultaneously raised prices significantly, and decided to separate its streaming and DVD business, putting the DVD business on another site called Quickster, and did this as they were losing rights to certain content. The result was a disaster as subscribers fled. The stock, which had traded as high as 6.5 EV/Revenue and a very high PE, crashed roughly 80%, had a bounce, and stayed at that level for a little over a year.

But, Reed Hastings and co. got streaming right, invested in original content, and the company regained subscribers at a rapid clip. The result: Since 2012, Netflix is up 10x, or a 75% annualized return.

This article was written by

Billy Duberstein profile picture
1.45K Followers
I am a California-based financial advisor and run a concentrated, long-biased equity strategy. NYU Stern MBA, former student of Damodaran and Galloway, among others. A love of the dramatic arts/narrrative, sports, and music all inform my investing philosophy. I have written and appeared on several investment publications such as The Motley Fool, Barrons, and Cheddar TV. My tastes run the gamut of investing approaches (value, GARP, and high-growth disruptors) that I like to characterize as "Special Companies" and "Special Situations" -- any unique bottoms-up opportunity that has  outsized risk/reward characteristics.

Analyst’s Disclosure: I am/we are long CMG. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

About CMG Stock

SymbolLast Price% Chg
Market Cap
PE
Yield (TTM)
Rev Growth (YoY)
Prev. Close
Compare to Peers

More on CMG

Related Stocks

SymbolLast Price% Chg
CMG
--