Why You Shouldn't Short Chipotle

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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David Meier has no positions in the stocks mentioned above. John Reeves owns shares of Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill, McDonald's, and Panera Bread. Motley Fool newsletter services recommend Chipotle Mexican Grill, Jack in the Box, McDonald's, and Panera Bread. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 05, 2012, at 7:31 PM, dapperone wrote:

    The immediate reason that you don't want to short CMG is that they will probably be reporting record earnings on 10/18. The damage done to the share price from Einhorn's unfortunate and inaccurate remarks has mostly run its course. Location means everything in the restaurant business, and because CMG and Taco Bell tend to be located in different types of locations (pedestrian shopping malls vs commercial strips with drive through), they tend to attract different types of the fast food customers. Despite the new upscale "Cantina Bell" menu at Taco Bell, there is still a huge food quality difference between the two operations.

  • Report this Comment On October 06, 2012, at 9:23 AM, TMFBane wrote:

    By the way, here's our taste test between Chipotle and Taco Bell. For me it wasn't even close:

    http://www.fool.com/investing/general/2012/08/07/tex-mex-tas...

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