Chipotle Mexican Grill (NYSE:CMG) is overvalued and the earnings have to be perfect to have an ascending triangle breakout. I have no idea whether the earnings will be perfect. I would not be surprised to see some selling on any good earnings report.
Here is the chart showing the potential breakout after earnings:
Our computer system gives CMG a grade of 62 out of 100, which is a weak HOLD signal. In addition, our computer calculates a minus 4.5% Implied Return, which tags it as overvalued. Let’s look at the fundamentals to see if it is overvalued and why it is only a HOLD and not a BUY signal?
According to Finviz the forward PE is very high at 48 and no bargain compared to the 35% five year growth rate. Obviously, with many aggressive growth stocks, valuation is ignored until there is an earnings miss followed by a sharp drop in price. At $851 I would like to see analyst targets at least 30% higher than price or at $1,106. I did see one analyst target at $1,000, but the consensus target is only $806. That means CMG better have very good earnings that will prompt analysts to raise their targets.
I expect CMG will have good earnings because of the recent analyst upgrade and the ascending triangle breakout price pattern. I think any earnings pop will target $860. Any slight miss and I think price would drop to $800 to test support.
Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in CMG over the next 72 hours.
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