Chipotle Mexican Grill, Inc. (CMG): Is David Einhorn’s Short Thesis About to Be Vindicated?

Instead, customers are willing to pay more for Chipotle Mexican Grill, Inc. (NYSE:CMG)’s high-quality ingredients, while Cantina Bell’s association with a fast food restaurant will forever relegate it to the “low quality” category in consumers’ minds. Therefore, it is unlikely that most American consumers will equate Taco Bell’s menu with that of Chipotle.

Bottom line

Einhorn’s thesis rests on rising expenses and increased competition. Although the company will undoubtedly suffer higher expenses due to Obamacare and rising input costs, it seems unlikely that significant competition will overtake Chipotle Mexican Grill, Inc. (NYSE:CMG) in the next five years. As a result, the short side does not look particularly appealing.

However, at 44 times earnings, investors are betting on a lot to go right just to justify the current valuation. Although higher profits will inevitably materialize, a high future return is not assured. Therefore, the long side is not appealing either.

Sometimes investors just have to take a pass. This is one of those times.

Ted Cooper has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and Panera Bread. The Motley Fool owns shares of Chipotle Mexican Grill and Panera Bread.

The article Is David Einhorn’s Short Thesis About to Be Vindicated? originally appeared on Fool.com.

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