Ryan Hodges

Ryan Hodges
Contributor since: 2012
Bleeding from the eyes! I bailed yet again at the $430 breach. It's just amazing at this point. As bitter as I am, I definitely give props to anyone willing to buy this bloated animal day after day at all time highs!
My head just exploded. I need to get on CNBC and debate one of these mindless dolt analysts. How do you justify a $13.5 billion market cap for a fast food joint with less than 1300 locations? With any trash answer they might try to serve up, I'd just respond with well per your logic, going forward all companies should just be priced at their IPO for what they might be worth in 12 years under a miracle scenario, right? Why would anyone buy CMG now as an investment when, even with inflation at 10%, the chances of the Company justifiably ever being worth more than $20 billion are less than 1%? Been trading for 8 years and when you think you've seen it all, you realize you haven't. At least NFLX was a tech company and under some outlier scenario could have realized 200% y-o-y eps growth. This pig will NEVER see greater than 30% y-o-y growth... and at $433 a share the market is already pricing in 5 years of 25% growth. And no analyst is willing to point that out. Amazing.
I couldn't agree more. In my opinion everything that Amazon does short of retailing represents a 'half-assed' effort. The tablets are low-end toys, the Amazon equivalents of iTunes and Netflix streaming feel like they were slapped together overnight and really are not user friendly. At the end of the day, all this 'technology' nonsense out of Amazon is, and should be viewed as, NOTHING but mechanisms designed to drive retail sales... and as such, sure throw in a slight premium for the tech, this should trade at 20x earnings (vs. 13.5x for WMT)... not 150.
Thanks for the compliment Shnork. It's just amazing to me that AMZN has been publicly traded for 15 years (in June) and in those 15 years has generated less than $2 billion in net income... total! The market continually bidding shares higher is almost the textbook definition of insanity: doing the same thing over an over with the expectation of a different result. If they haven't consistently made money in 15 years, why this expectation that they can now ramp from $1.27 in eps to $10, you know? AMZN is a retailer and the bulk of its revenues are always going to come from retail. Perhaps we'll see the Company spin off it's AWS at some point, which fine, maybe then I could see the market giving its tech assets an absurd multiple but the retail side... forget it.
No no, trust me, I believe CMG is the juiciest short opportunity since NFLX, OPEN and GMCR. But really the only way to play CMG short is via puts unless you've got half a million to tie up in an outright short position... and, with expiration so close, a 2% move in April puts will erase half of your investment, which is pain I'm just not able to tolerate on a sizable position. That's why I keep it small... so if I lose 75%, while I won't be happy, I'm not going to be ruined over the trade gone wrong...
Exactly Mark, you need to be in it ahead of the big whoosh lower... but CMG is nothing more than a manipulated trading vehicle at this point so it's virtually impossible to short size and hold because it's driven higher: every. single. day. It's exhausting. How many times in just the last 2-3 weeks has it dropped 8-9 points... if you chase that move you get your face ripped off to the tune of a 12 point bounce within 36 hours every time.
That's why I have a few ATM puts... so if/when it drops $100 I'll be in... if it doesn't, well then in my mind the risk/reward was right so while it burns me to lose $, especially when I know that I'm fundamentally correct, having a small position actually gives me peace of mind.
Overall great article but just a quick thought in regards to your Chipotle example: buying CMG at 62x earnings is simply not an investment... it is a highly speculative TRADE. An investment and a trade are two entirely different animals. Whenever you pay current shareholders for 5-6 years of growth already priced into shares you aren't investing in the future of the company because the near-to-medium term growth is already fully reflected in its share price. Paying-up for 'overvalued' stocks, particularly one like Chipotle where future growth is highly predictable (ie there won't be any year-over-year 300% eps growth surprises like Apple realized in the early 2000s) is in no way, shape or form investing... it's 100% relying on the hope that a greater fool will pay you for the same 5 years of growth you paid for whenever you're ready to sell... So in hindsight your recommendation to buy CMG last October has turned out to be a homerun TRADE but anyone that bought the company as an investment was uninformed and simply lucked out (the company hasn't grown anywhere near 41% since then so why is the stock up 41%? because it's a manipulated trading vehicle at this point and nothing more).
here's a link that contains the targets...
It's almost meaningless as far as CMG is concerned... unless she jacked up her estimate 200% the stock will still be grossly overvalued at whatever she revised her #s to.
Well to be perfectly honest Mark I don't trust this thing to act rationally at all. Look at Thursday's action: markets red, CMG up 8 points. On Monday we'll print 1380 on the SPX and I wouldn't be at all surprised to see this thing break out to $440. I did bail on 80% of my position when it broke $420 but hung onto just a little just because I know eventually it will crater and I don't want to be completely left out. If it opens down Monday and I see some actual selling I'll barrel back in. What about you? You still holding strong?
yep I bailed this morning when it broke through 420. glad I did. there is no rationale for this stock's movement - it's entirely driven by a buy program - no true demand. for an already grotesquely overvalued stock to add $14 per share from 1PM yesterday to today's close, on NO material news when the markets are relatively weak... I mean come on. In 24 hours from trough to peak the algo successfully added (31 million shares x $14) $434 million in market cap to Chipotle. like I mentioned in my article, rationality is no longer relevant. it's hardly any more absurdly valued at 450, 475 or 550 than it is at 425 is it? so really the sky is the limit now.
when it was trending lower all day yesterday I had all the confidence in the world that this would break $400 today or Monday. but of course 4 hours of downside was manipulatively undone with a few $2-3 bursts caused and subsequently supported by the old pump and prop algo forcing weak intraday shorts to cover and next thing you know the stock is only down $4.
anyway, I'm on the sidelines for now. apparently the goal here is to drive this thing to a $20 billion valuation - in other words, let's just fully value the company today for what it might look like in fifteen years if everything goes just right. a year from now it'll be at 550 and the stock will at that point essentially represent a place to park your cash with 0 remaining upside and 70% potential downside.
Simply put, CMG is priced today for how it MIGHT be performing in 5-6 years under a rather aggressive growth scenario. That's why it cannot and will not continue to rise... there aren't and will be no NEW buyers as long as the stock remains significantly overvalued. Who in their right mind would buy a stock that has already priced in the next 5-8 years of growth!? That would completely defeat the purpose of investing. The argument that it'll be justifiably worth 15 or 20 billion some day is absurd. I'm not saying it won't be, but it surely isn't worth that right now. That would be like a company going public today at a price commiserate with its expected valuation in 2020. This recent resurgence of pricing in anything more than 12 months of expected growth into stocks is just ridiculous.
Further, anyone currently buying the stock for a short-tern trade simply because it keeps rising it taking on, in my opinion, unconscionable risk. Sure that trade has been miraculously and inexplicably working since late November but I wouldn't be able to sleep at night knowing that yes, I'll probably get my customary 1/2% gain tomorrow but the very real risk inherent to realizing that reward is the stock opening down 10-15% any given day with another 30% easily left to fall beyond that in a thinly traded, grossly overvalued momentum stock like CMG.
vccc, I'm not sure that anyone here has gotten their face ripped off trying to short CMG. The Company clearly stopped trading based on fundamental/value (and even growth prospects) about $150 ago and when that happens any experienced trader knows not to be 'all-in' short in front of a moving train.
To your point that CMG "deserves at least 1/5 the market cap of MCD" - that's simply your opinion - it's really just an arbitrary statement because you do not offer up a "why" to back your assertion up. Are they also going to have 1/5 the number of restaurants, etc.? I would love to see you put a bullish article together for CMG and submit it for publication. I definitely appreciate everyone's point of view and would greatly enjoy hearing your argument and seeing it backed up (at least loosely so) with facts and figures.
Further, I, nor any other CMG bears really appear to make that claim that Chipotle will never be worth its current $13 billion valuation and of course it could absolutely grow to become a $20-$30 billion company SOMEDAY. But why is that relevant now? Who in their right mind would choose to park their capital into an investment that has already priced in the next 5 (or maybe as high as 7-80 years of growth?
If you're holding the stock from 60, 90, 100 etc. it's one thing. My thesis is that buying it at $420 is irrational as all you'd be doing is paying current shareholders for growth that will be achieved when you own the stock and they are on the beach.
The market pricing anything beyond 1-2 years of growth into a stock is nonsensical and that is the case now with CMG.
thanks for the comment tew. I can appreciate your insight on the SSS... keep in mind I did model in same-store-sales growth at 10% a year for the next 5 years which essentially acknowledges your point that "There is room to grow throughput at many locations without additional CapEx and labor," does it not?
and you are right, my mention of input costs there actually distracted from my allusion that raising input costs will almost always lead to raising prices, and that raising prices could potentially lead to consumer defection. but again, point taken and thank you for pointing that out.
don't get me wrong - great company, well run and I love their burritos, but the stock is grotesquely overvalued no matter how you slice it...
I agree Mark. As I wrote, edited and reread my piece I found a renewed sense of comfort in my thesis... but like I pointed out, rationality seemingly does NOT come into play with CMG's valuation. Just look at yesterday's price action. It is the same deal every day: a 2-3 point drop, a very brief stop and then an immediate snap-back. For a stock that is covered by so many analysts, is reported on by the media regularly and is followed by hoards of traders I find it quite interesting that the daily volume rarely eclipses 500k shares. That said, it takes very little for weak intraday shorts to cover, which often sends the stock up .5-.75% within 60-90 seconds on sometimes as few as 1500-2000 total shares. In other words the algo-driven 'order flow' is the only thing dictating the price action as fundamentals are so out-of-whack with the current valuation that they have 0 impact on daily price fluctuations. I am virtually certain no institutions or hedges funds are initiating a position at $418.40 so I'll be shocked to see this to continually plow higher on the back of no true accumulation.
OM1, no the numbers are not inflation-adjusted. The comparison wasn't necessarily based on the fact that both companies reported similar nominal dollar-amount revenue in 1991 and 2011 but examined their relative valuations against profitability in those years. Similarly, for simplicity I assumed inflation from 2011-2031 would be comparable to inflation from 1991-2011 so the overall accrued effect of inflation on 20 year returns would be crudely similar in terms of 'hypothesizing' Amazon's growth. Even if that proves not to be the case, it would most likely not be significant enough to derail my underlying thesis.
Again, my numbers aren't necessarily meant to, with great accuracy, project Amazon's exact valuation in 2032. Instead using reasonable (albeit non-complicated) growth and profitability assumptions I conveyed my point that so much growth is already factored into AMZN's current valuation that returns for those initiating a position today will most likely NOT be substantial l over the next two decades.
Hey Bohsie, see 'LE's' comment below... you grew earnings by 100% yoy for 2 years to get to EPS $5
Bohsie, I agree that PE is not a good measure for 'unmatured companies' which is why I didn't look at LULU or NKE growth rates or P/Es but instead compared market caps and revenues.
No matter how you slice it it's absolutely ludicrous that LULU would have a market cap equal to 1/4s of NKE were LULU to hit $100 in 12 months. And while I can apprciate rapid growth, LULU isn't SBUX... it sells yoga apparel.
My point is, LULU NEEDS to grow 50% yoy for the next 3-4 years while the stock doesn't budge (which we both know won't happen) for the valuation to drop back to earth. Astronomical growth is already baked into the cake... so a 33% advance from $75 to $100 wouldn't be logical given the expectations already priced into the stock.
David, I'm not bearish on LULU per se, but I think its current valuation is way too rich... and to see it print triple digits within 12 months... well in my estimation that would just be entirely too exuberant.
I tend to always go back to Comps 101 as my 'rational' compass and when, per your projections, in one year LULU would be trading at 1/4 the market cap of NKE but only recording 1/17th the sales (and that's with NKE projections, not current figures)... well to me there's no way to rationalize that kind of valuation disparity.
I went into a little more detail in my SA Instablog if you're interested: