OK, Einhorn -- You Win Again

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I don't think anyone can accuse billionaire hedge fund manager David Einhorn of merely being lucky.

After getting the better of mutual fund icon Bruce Berkowitz when bashing The St. Joe Company (NYSE: JOE  ) two years ago and nailing the short thesis on Green Mountain Coffee Roasters (Nasdaq: GMCR  ) last year, Einhorn's knock this year on Chipotle Mexican Grill (NYSE: CMG  ) is off to another validating start.

Einhorn isn't lucky. He's just good.

His presentations at the annual Value Investing Congress are now the stuff of legend, and you can be sure that the market will be listening -- and reacting -- to whatever he decides to bet against next year. The more slides, the merrier (or scarier).

I, on the other hand, am a chump.

I didn't take sides publicly on Florida real estate mogul St. Joe, though I generally agreed with Einhorn's call at the time. St. Joe's stock is still trading 20% below where it was when Einhorn attacked, even with prices of Florida panhandle real estate finally moving higher and publicly traded developers marching back into investor fancy.

However, I was a critic of Einhorn's two subsequent calls.

"You're wrong," I countered last year after Einhorn took a bite out of Green Mountain's prospects and accounting practices.

He wasn't. Green Mountain has gone on to shed nearly 75% of its value as slowing sales and the now expired K-Cup patents have taken their toll.

"Taco Bell Isn't Chipotle," I argued earlier this month, as Einhorn suggested that Yum! Brands' (NYSE: YUM  ) Taco Bell is eating into Chipotle's popularity.

I'm not ready to concede defeat entirely on this month's short thesis of Chipotle, but Einhorn clearly won the first round. When Yum! Brands reported that Taco Bell posted a 7% pop in same-store sales in its latest quarter -- fueled by the success of its slightly upscale Cantina Bell line -- I wanted to reserve judgment until Chipotle had the final word.

Well, Chipotle's mere 4.8% increase in comps during the same three months suggests that there may be some merit to Einhorn's argument. Most fast-casual chains would love to see the average store ringing up nearly 5% more in sales over the past year, but Chipotle was posting much heartier advances in recent quarters.

Perhaps more important, Chipotle's guidance points to generally flattish comps for the current quarter and for 2012.

Yes, Chipotle has historically been very conservative with its guidance. However, if there was ever a bad time for the company to prove itself mortal, it was this month after Einhorn ripped the restaurateur into carnitas shreds.

Well played, Einhorn.

Save room for dessert
With Green Mountain as cheap as it's ever been, many investors are wondering whether this is the end of the former market darling, or the perfect entry point for an enormous rebound. You can find our recommendation for how to play the company in our new premium research report. In it, you'll find everything you need to know about the coffee company, including whether Green Mountain is a buy at today's prices. Click here to get your copy today.

Longtime Fool contributor Rick Aristotle Munarriz owns shares of Green Mountain Coffee Roasters. The Motley Fool owns shares of Chipotle Mexican Grill and has the following options: long DEC 2012 $16.00 puts on Green Mountain Coffee Roasters and short DEC 2012 $21.00 calls on Green Mountain Coffee Roasters. Motley Fool newsletter services recommend Chipotle Mexican Grill, Green Mountain Coffee Roasters, and Yum! Brands. 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.

Read/Post Comments (3) | Recommend This Article (6)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 22, 2012, at 6:53 PM, optimist911 wrote:

    I would venture that luck was largely responsible for this call. It was just a matter of when: No restaurant chain could possibly keep up such blistering growth, unless Americans start pigging out even worse than now. Chipotle was getting long in the tooth, or perhaps the rectum -- toilet bowls all across America can take only so many of their indigestible overstuffed burritos.

  • Report this Comment On October 22, 2012, at 7:42 PM, Zinj wrote:

    I think we're often too quick to think of Chipotle and Taco Bell as similar (and therefore competitors) due to the fact that both sport Tex-Mex inspired menus.

    Let's not have country/region-of-origin of the menu concept blind us to the possibility that other restaurants, or more broadly, sources of food may be more direct competitors to Chipotle than is Taco Bell. Whether it's the publicly traded quick-casual universe or a private firm like up-price Five Guys, I think there are competitors who fish in Chipotle's pond at least as much and perhaps moreso than does Taco Bell.

    I personally abhor Taco Bell and like Chipotle a lot -- my main reservation (ha!) is that Chipotle's portions are too large, so that may color my opinion here. That said, I bet I'm not in a small minority here. My chioce is often between Chipotle, Panos (a local empanadas chain), something non-Lain, or eat at home.

    Taco Bell doesn't even figure into the calculus. It just tastes cheap.

  • Report this Comment On October 23, 2012, at 1:08 AM, dgmennie wrote:

    I first bacame aware of Taco Bell when I lived in Los Angeles in 1968. I could not believe people actually ate this stuff. Now it is 2012 and my basic question has still not been answered, despite my 'glimpse of the future' over 40 years ago.

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