I like the food at Chipotle, eat there fairly often...and I've been a fan of the stock for the past year watching the meteoric growth and profits.
However...at this point it seems priced beyond perfection. A P/E of 38, considerably higher than most of it's competitors. In the last 6 months no insider buys, but several insider sales resulting in an overall reduction of 21% of stock held by insiders. A 14% reduction in the amount of shares held by institutions over the last quarter. Insider options being exercised with the shares gained through that action being sold (in full) the same day on numerous occassions this last quarter.
Today the options action was about normal (which is light compared to most optionable stocks) with the exception of the November 190 and 195 calls. Both had heavy volume, and if you watched time and sales the great majority of those were sold at the bid, and at times even below the bid for large transactions...200, 300, 500 contracts). To me this indicates somebody was selling the calls in size, probably knowing the stock will not reach these prices, allowing them to keep the premiums free and clear. Big money betting on stock price increases usually buys at the money or in the money options, not out of the money, as was the action today.
And on a day when all major indeces were up strongly, CMG just laid there most of the day, with a slight selloff at the close...no a good indicator of strong earnings 24 hours away.
And the lines seem a bit shorter when I visit there now than they were 3, 6, 9 months ago.
I still like the food, but I think the stock has gotten ahead of itself. This economy has caught up to almost everything at one point or another, it may finally be CMG's turn.
50 day moving average is at $165, first significant support at $150, next at $135 (all rough estimates on price, not exact). Anything short of perfection this quarter and CMG could visit all of these levels in relatively short order IMHO.
1/38 = 2.6% yield. Your paying for growth here which is a big bet. Even if commodity prices stay constant and don't go up there are still more competitors coming to market. Free Birds, Q doba, Mission Burrito, Bullritos. Don't get me wrong chipotle makes a good burrito, but there are few barriers to entry when it comes to this company. There are no patents on burritos and any little family with a truck can decide well lets put rice beans and some meat in a tortilla with our homemade salsa and call it a cheap burrito. There international presence I question, since the associated costs of entering another country will be quite expensive, cheap dollar higher exchange rates in other countries and this company would not work in latin american countries cuz its no different than a homecooked meal, except for sour cream and cheese.
By no means this is a profitable, solid company which will have continued profitablity but increased profitablity can only go so far.
I'm long CMG and have been for a few years. I work as an analyst at a large research company specializing in consumer out-of-home food purchases. Additioanlly, I've worked out a model that I really like for estimating earnings and margins based on historical inputs (a bit of rear view mirror driving I know). Based on what I see for overall restaurant trends at work as well as my own modelling, I think CMG will blow the number out for Q3. My model shows $1.56 but I'm hedging a bit and am predicting EPS of $1.50 (plus +/- 6 cents). I also think CMG is going to mention food costs as a potential "headwind" for earnings in Q4 and beyond. I think this will be enough to send many to the exits.
One thing about the food cost issue that most non-restaurant types don't understand is that food inflation inside the restaurant normally lags commodity inflation by 2-3 months - restaurants contract for most non-perishables as well as hedge perishables. Also, food costs in Q2 and Q3 are the best of the year because restaurants can buy US produce. As a result, the real "hit" on food costs shouldn't hit in Q3 as much as Q4 this year and Q1 next year.
(PS: Watch McDonald's earnings release before the bell to get a better vibe on the overall health of the industry plus some take on food costs)