wax

Chipotle Mexican Grill: Does the Growth Justify the Price?

From a discussion board post 10/25/07. As far as I'm concerned, nothing has changed.

Wax

...The stock closed yesterday at $123.55, down $3.58, which seems like a pretty good drop to me, but what struck me is unless you are a momentum/short term investor, why would you want to own a stock with a PE of 75, and more specifically why would you want to own this stock?

I don't mean to put you on the spot, and it's really none of my business why you want to own the stock, I asked because as an investor, you have to put things into perspective, and the first question any investor should ask is why am I buying this stock? What do I want an investment in this stock to do for me?

To me there are only two answers. The first answer is short term price appreciation. I'm buying this stock because I believe that momentum is going to drive the stock price higher over the shorter term.

The second reason is long term price appreciation with a reasonable expectation of capital preservation.

I poked around some and found that with yesterday's close, the stock has overhead resistance at $133.63, meaning from current levels the stock has an upside potential of about 5-6%.

In addition, the stock has first support at $112.26, meaning from current levels the stock has initial downside risk of about 11-12%, and second support at $83.19, meaning from current levels the stock price has the potential to decline by about 35%.

I also took a look at some of the company's historical pricing. I found that for period ending 01.26.06, the stock price closed at $42.20 on volume of 7,184,700 shares. As the volume falls pretty dramatically after this, I assume that the company's shares came out of lock up around that time, or the company's IPO came out, or something along those lines.

I notice that the stock price and volume don't fluctuate much until the period ending 04.30.07, when the stock price jumps to $78.37 and the volume spikes to 1,534,800 shares traded.

This general trading/volume range remains until period ending 07.30.07, when again the volume increases to from 686,600 shares, to 1,1182,200 shares and the price moves from $81.50 to $97.90.

The next week, same thing and the week after that the volume decreases but the price continues to increase. And that is the current pattern for the stock.

Which brings me back to my original question of what do you hope an investment in this stock will do for you?

If I were going to invest in the stock of this company it would be as a short because to me, the only place the stock price can go is...down.