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Chipotle's Long Descent Into The Abyss Continues


  • A bearish call dating back to 2015.
  • Earnings disappoint, and the stock breaks $300 per share.
  • Ackman has queso on his face.
  • Reputation in the food business is everything.
  • More room on the downside?

Stocks have been on fire over recent weeks, but when it comes to one beleaguered fast food chain, the price action has been just awful. Last week, Chipotle Mexican Grill (NYSE:CMG) reported earnings and investors and traders have been selling the stock mercilessly in the aftermath.

CMG was a darling of Wall Street as their marketing approach of fresh and healthier fast food took the share price to $758.61 in August 2015. However, nothing is worse than customers coming down with intestinal distress in the restaurant business and when it comes to Chipotle the widespread nature of cases of a lot more than indigestion caused the share price to swoon. The company responded by stating it was cleaning up its act and even hedge fund manager Bill Ackman got onboard with the plans to reestablish Chipotle as the healthy alternative to burger and chicken joints and other Mexican establishments that offer fast and cheap food for those of us on the run.

Unfortunately for Chipotle, it has been a long and hard road to climb back into their customer’s favor after making so many sick to their stomachs. I have not liked the prospects for CMG since the sickening news about the company first broke in 2015.

A bearish call dating back to 2015

On November 9, 2015, I wrote my first bearish article on Chipotle Mexican Grill. At the time, the price had declined from the all-time peak to around the $612 per share level. One month later, I explained that CMG had run into an “iceberg of indigestion” as the price fell below the $600 per share level. On June 20, 2016, the price of CMG declined to below the $400 per share level, and I said, “In my article in late

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Andrew Hecht profile picture
Andy Hecht is a sought-after commodity and futures trader, an options expert and analyst. He is the #2 ranked author on Seeking Alpha in both the commodities and precious metals categories. He is also the author of the weekly Hecht Commodity Report on Marketplace - the most comprehensive, deep-dive commodities report available on Seeking Alpha.

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Comments (38)

No one's buying because suddenly everyone and their brother has understood Chipotle has menu problem. Thanks god we have JG who is going to fix it. :)
Have you listened to Ackman's interview with CNBC? From his defensive statements it does feel like they have no new food offerings.
Nice quite down day on CMG front. Have you heard Ackman? He mentioned 6-7 years period to fix this piggy. It means he has no slightest clue and that is why he keeps bringing Burger King as example.
Better times will come.
You don't have to own the stock waiting for 'Better Times'
This stock is ruining my portfolio. Ugh. I still believe though.
How did an article about Chipotle get thrown into the "Gold & Precious Metals" section of this website? I assume they aren't expanding into jewelry...
The Author is a commodity specialist and one of his points out that high beef, pork, and chicken prices are hurting margins.
Andrew Hecht profile picture
lol---did not realize that! I will attempt to fix
$7/share earnings plus $7/share depreciation. Roughly $14 cash flow from ops. 15 x cash flow from ops = $210. As they continue opening more stores with the same tired menu they will cannibalize their older and better, more stable stores and 15 x cash flow may easily slip below $200/share.
Why are you guys assigning reasonable multiples in a market where they don't matter. Netflix, Amazon, and Tesla should tell you that. Fundamentals mean jack sh*t....until they do...
The Fox, you may know something. What is it?
$150 stock
Only if their normalized earnings turn out to be $6-$7 with very low growth. It's possible.
IMO - Bill will be fine as he is a long term 'investor' and incredibly intelligent. However, he cannot manage PS Shareholders if they decide to pull their money he will obviously need to raise cash from the best alternative at the time. Mr Buffett closed his first partnerships to remove this type of behavior. Thanks for the work and comments. No needs.
Spend_time_in_the_market profile picture
Âckman is well spoken and very persuasive. But he is stubborn and can't admit failure in his method. Everybody has failure but it take a special kind of man to admit it! He is not one of them.
He could be hedging his position and making more money shorting. Hard to tell.
Calculus profile picture
stock is up today.
don't know anything about it so can't so why up or down.

the market overall continues to knock at all time highs so at some point these rather "spastic" sell offs will equal support instead of resistance.

tough time of year going into the Holidays.

not even a snowflake in the Northeast and it's now November.

haven't even had a frost yet.

great news for the construction and transportation industries.
Buyandhold 2012 profile picture
Chipotle has only fallen from 499 to 276 in the past 12 months.

What else did you expect?

The stock was ridiculously overpriced.

I might consider investing in Chipotle at 200.
GeoffHiker profile picture
Look at the 10-year chart for CMG. At the beginning of the head and shoulders pattern CMG was 39.30 on Nov 21, 2008. Left shoulder April 2012. Head Jan 2015. Right shoulder May 2017. Chipotle isn't unique anymore and has much more competition - Costa Vida, Cafe Rio, etc. That is the pattern here.
Stockpicker1967 profile picture
All restaurants are under pressure at this time, but CMG fortune will start turning back up. CMG offers quality food at a reasonable price. Their employees are better then other fast food restaurants, and the CMG stores in our area are very clean. The store traffic is starting to pick up in our area. The problems of previous quarters should not hold true in the coming quarter. CMG will be expanding its store menu, and slow down the stores openings some. CMG is working to make its management team stronger.
ohnoitshimagain profile picture
Biased opinion here....
GeoffHiker profile picture
You do realize that slowing down store openings (slowing growth) has a negative impact on PE? I used to eat there a lot. The last time I went was September to gage foot traffic. Definitely fewer people and the usual line after 11:15 am didn't materialize, the food wasn't as fresh, so I bought puts. It was a mistake to get rid of their chorizo - 10% of customers bought it. They are flailing. It's possible CMG will come back, but it will be a long time and everything will have to go right. One more screw up and it will be breaking $200.
You bought puts based on one lunch visit and their chorizo? Nice research.
I would buy @200-220
There was Valiant and Herbalife, now Chipotle. The bright side is that at least he did not buy Chipotle in August 2015 near the all time high of $758.00 per share.
the Tex Mex trend is out of steam. pile your cash into Mediterranean, trust me.
What do you recommend?
GeoffHiker profile picture
I assume you mean the stock trend because of competition. Eating Tex Mex is still very popular. There are so many options that it is not unique anymore.
stephenmcmahon83 profile picture
What it boils down to is that the stock was far too expensive relative to the real underlying earnings power of the franchise.

In many respects, CMG is doing just fine operationally. Problem is that Mr. Market priced it in 2014 as if it were putting up McDonald's numbers, and it simply is nowhere near doing that.

Would be a perfectly fine stock to own if it were 70% cheaper, in my opinion.

Amazon, Shopify, and Netflix longs should take note.
ohnoitshimagain profile picture
Well said, and exactly why it will contract further.
MTSkyInvesting profile picture
My year end price target remains $245.
This afternoon I see a pulse on CMG is this a dead cat bounce or the calm before the advertised premature death. Time will tell long CMG
ohnoitshimagain profile picture
This thing is headed down lol intraday pulses lol, what you’re seeing is the exchanging controlling the liquidity and order flow, it will fall nice and slowly.
sooperhop profile picture
Another BOMB dropped!
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