Chewing on Chipotle

We warned our fellow Masters time and time again when Chipotle Mexican Grill, Inc. (CMG) was a $400 stock to put down the burrito and run for the border.  Now that CMG is in the $200 range its starting to look attractive.

Anyone who was still eating tacos when Chipotle was over $400 was crazy to think the party would continue.  Chipotle crashed since summer falling from $442 to today's price of $249.  Thanks to the decline Chipotle is trading just 6% from its 12 month low with a more reasonable restaurant chain P/E of 29. 

The bottom appears to have been set earlier this month for CMG when its shares tanked to $233.  The company did not please the street earlier this month on its earnings call and its stock price reflects the bearish tone.  For the vultures on the sidelines (like us) we like that the burrito maker's Q3 revenue increased 18.4% when compared to Q3 last year.  Chipotle posted an impressive 19.6% growth over last year's Q3 for net income.  Expectations for CMG were too high. They have been for a while and its stock was overdue for a pullback. 

There are more fans of this company than Negative Nancy's believing its growth story is over.  Chipotle still has a great concept and continues to be a money maker.  The Short float is up to 13.4% as of Oct 15th on CMG.  That means any favorable headlines for Chipotle could help lift the stock and turn on the shorts.  Yesterday Piper Jaffray went to bat for CMG and set a reasonable $318 price target.  Piper thinks that Chipotle's underlying fundamentals continue to be intact, and the firm keeps an Overweight rating.  If Piper is right than buying CMG today implies a 27% ROI in the next 12 months.

MASTERY Bottom line:

The wet burrito slap to the face has occurred on CMG.  Now its time to rebuild the burrito and take a bite while its still trading low.

CMG Charts