One Chipotle Mexican Grill, Inc. (CMG) Analysis You Should Actually Pay Attention To

Famed bond manager Jeff Gundlach, the founder of DoubleLine Capital, made a splash last week when commenting on Chipotle Mexican Grill, Inc. (NYSE:CMG). Attendees at an investor luncheon tweeted and reported that Gundlach identified Chipotle as a good short because he said there is no such thing as a gourmet burrito.

Chipotle Mexican Grill, Inc. (NYSE:CMG) dropped around 2.65% in afternoon trading on April 11th after the remarks were made, but then bounced back over 3% on April 12th.  David Einhorn of Greenlight Capital also called the company a short in October of 2012, while stating that Yum! Brands, Inc. (NYSE:YUM), the operator of Taco Bell, was better poised for growth. Despite the negative take by two famed investors, the Company’s stock price has bounced back significantly from a 52-week low of $223 to a recent price of around $341.  The company has also continued to report increased revenues, which is certainly a bullish sign.  The question for investors is if Chipotle is a short candidate, or whether it may be poised for further growth.


The growth is there

Short sellers may want to stay aware, since Chipotle Mexican Grill, Inc. (NYSE:CMG) is putting up impressive revenue growth.  The Company released earnings on April 18th and reported revenue for the first quarter of 2013 of $726.8 million, which was up 13.4% over the prior year period.  Chipotle further announced diluted earnings per share of $2.45, an increase of 24.4%.  Revenue for the fiscal year of 2012 was $2.73 billion, an increase of 20.3% from 2011.  The Company currently has a P/E ratio of 37.23, and an EPS of $8.82.  This is compared to a P/E ratio of 19.65 for Yum! Brands, Inc. (NYSE:YUM), which also has a much lower EPS of 3.45.  Chipotle is still pursuing its rapid growth by opening 183 restaurants in 2012, for a total number of 1,410.  The Company opened 48 new restaurants during the first quarter of 2013.

Many in the market are following the lead of Gundlach and Einhorn, betting on a downturn in the Company’s fortunes.  Chipotle Mexican Grill, Inc. (NYSE:CMG) has a high short float of 13.11%, with a short ratio of 6.97.  As of March 28th, there were 3.7 million shares being shorted.  Not surprisingly, the price action in the stock is choppy with monthly volatility at 2.28%.  The share price is especially prone to big moves during earning releases, with large moves up and down over the past year.  The price reached an all time high of $442.40 in April of 2012. As noted earlier, the stock has been in a steady climb since reaching a 52-week low in late October of 2012.  There does appear to be some resistance at around $350, where the price topped out at in late August of 2012.  A strong push through this resistance level may be a bullish sign for the stock.

What do the hedgies think?

According to our database which tracks hedge fund holdings, Jim Simons of Renaissance Technologies held 249,300 shares during Q4 of 2012, but this position was reduced by 49% from Q3 of 2012. Click here to read about Renaissance’s dividend yield picks. Citadel Investment Group, founded by Ken Griffin, held 260,865 shares in its portfolio according to its 13F filing for Q4 of 2012, but this was a 2% reduction in the share count from Q3 of 2012. Thus, it appears that some prominent hedge funds are reducing their position in the stock, which may be taken as a bearish indicator; read why you might want to dump your hedge fund.