Chipotle is a stock that I’ve viewed as overvalued for a long time. (I taught a financial statement analysis class in 2009 or 2010 where the final project was a Chipotle valuation. Some day I’ll dig my estimates up and figure out how badly my estimates missed the subsequent performance.)
It’s in the news recently because the stock (currently trading around $3,200 a share) is scheduled to split 50-for-1. It’s currently trading at around a P/E ratio of 60 for a market cap of almost $90 billion. This continues to strike me as nonsense, and I looked up the most recent CFRA report. Here’s what they say about valuation following the most recent quarter:
CFRA Maintains Buy View on Shares
of Chipotle Mexican Grill, Inc. (CMG 3125.29****):
We lift our 12-month target to $3,700 from
$2,930, 66.0x our 2024 EPS, a premium to CMG’s
five-year average forward P/E, reflecting CMG’s
outsized growth relative to peers. We raise our
2024 EPS to $56.04 from $54.12 and 2025’s to
$66.35 from $65.10.
Sure, let’s raise the target price by 26%(!) based on revising earnings expectations upwards by about 2-3%. What on earth is going on?
Anyone interested in this stuff should read “When Genius Failed” about Long-Term Capital Management failing in the 1990s.
The biggest lessons I took from it as a professional trader are:
No matter how smart someone’s models and programs are, the markets are still influenced by human traders with human emotions
(What the above post reminded me of) The biggest factor in derivatives markets is the capital constraints on individuals. The cycle of being forced to liquidate is ruthless and will continue until someone with more capital steps into the market.
I also took away that just because your back tested model says you’re hedged, that does not mean you are hedged. Also leverage is often fatal in a crisis.
For sure. Even when I’m trading in a single Treasuries Options market with only 5 expiration dates in play, it can be really hard to tell what is and isn’t correlated risk.
It’s also really hard to treat things as risky when multiple years go by with no whiff of that being an actual risk, which is how people get undisciplined and ultimately fail.
Absolutely. In my world everyone got used to rates being 0 for a decade. Not fun to buy interest rate caps for 10+ years and be out of the money the whole time. So they stopped and now they’re fucked.
Even though I have access to much better data if I have the energy to do some light coding, I think https://www.portfoliovisualizer.com/ is great for this kind of thing.
This is the sincere belief of half the Crypto thread in this forum. In Portnoy’s case, i think he’s doing a bit to maximize expected value of future grifts.
Maybe someone can help me understand this … I often see people who have invested in a stock lamenting short sellers working to depress the share price. But how would this work? Someone borrows the shares and then tries to sell low rather than high? But in general it seems like the larger market creates the price, all the sales have to have a buyer … So mostly it seems like WSB retail nonsense, when people say this.
There are firms that specialize in short positions that do a lot of research and then release their results if they find the company’s financials are full of shit. That can be effective in driving down the price. But that’s probably not what these people are talking about.