The following video is part of our "Motley Fool Conversations" series, in which analyst John Reeves and advisor David Meier discuss topics across the investing world.
The big news in the investing world is that David Einhorn recommends shorting Chipotle. John and David, who aren’t as famous as Einhorn, disagree with the idea. Here’s why. Einhorn’s argument is based on a high valuation and an eroding competitive position based on Yum! Brands Taco Bell rising to challenge the company. It’s important to remember that founder and CEO Steven Ells is a trained chef. That gives Chipotle options on the menu. as well as options to open up new concepts, like ShopHouse. Also, a good restaurant that’s well run can build an advantage. Just look at what McDonald’s has done or Panera. Chipotle has both, in our opinion. There’s no doubt that Chipotle faces plenty of competition from Taco Bell and Jack in the Box’s Qdoba, but it’s a well-run business with plenty of growth ahead of it. The stock price could come down in the short term, especially if there's a recession. But John and David think it looks like a risky short idea.
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