Last month at the 2013 Ira Sohn Conference, hedge fund rock star Jeff Gundlach revealed shorting Chiptole Mexican Grill as one of his top trading ideas.
Specifically:
Gundlach admitted to loving Chipotle’s product, but did suggest “a gourmet burrito is an oxymoron,” adding that he hates the company’s chart. Barriers to entry aren’t all that high, Gundlach explained, when all that is needed to enter the market is a taco truck. (Source) (Emphasis Added)
He also went on to note that he was not impressed with the firm’s earnings growth.
But a taco truck it is.
Now, turning to the technicals to get serious here, we can see the daily chart (first below) indicates that CMG becomes extremely vulnerable to further short-term downside pressure below $359 support.
Beyond the short-term, though, consider the weekly chart (second below), where the entire rally since October 2012 may very well prove to be a bearish rising wedge within the context now a major downtrend which began in April 2012, prone to rolling over for another leg down.
The bearish thesis likely comes under heavy pressure if the stock can reclaim $380.
But after last week’s price action, bears piggybacking Gundlach will now have their best chance to finance a taco truck with any winnings.
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Great write-up, Chess! I did a little more research on CMG and found Benzinga reported back on May 15th that Einhorn closed his CMG position (I assume it was long). Perhaps he and other big investors are starting to feel that CMG has had it’s run.
However, I see another Tex-Mex-style chain with some diversification (i.e. not all Tex-Mex) that is trading at pricier valuations than CMG.
For example, check out the chart for FRGI (Fiesta Restaurant Group), a small-cap that runs the Taco Cabana chain (established in Southern USA) and also an international chain called ,
Pollos Hermanos, I mean, Pollo Tropicals (sorry for the slip).FRGI is tiny compared to CMG but has a P/E ratio of 55, compared to CMG’s P/E of 39. And look at the lift-off on the FRGI chart since April!
Thanks, ultra. Einhorn was actually short CMG. I traded FRGI last month. Like the name and story. Will look to buy after a pullback.
DOH! My bad on Einhorn, thanks for the correction. Gotta work harder on my fact-gathering…