In this video, Fool analysts Austin Smith and Jason Moser take a look at the bear case for Chipotle Mexican Grill (NYSE:CMG) and why investors might consider selling the stock.
Jason is bullish on the restaurant stock, but says investors should always be looking for red flags. What are those red flags for Chipotle? He points to three key areas.
First is the competition in the fast-casual dining scene, including that coming from traditional fast-food chains like McDonald's (NYSE:MCD). Investors should look for any sustained decline in same-store sales.
Cost inflation is a second concern, Jason says. Chipotle believes in "food with integrity." But that doesn't come cheap. Cost increases could shrink margins.
Finally, investors should also keep an eye on founding CEO Steve Ells, who has been very involved in the business to this point. Austin draws a comparison to Starbucks (NASDAQ:SBUX), which struggled mightily when founding CEO Howard Schultz first left the business.
Austin Smith owns shares of McDonald's. Jason Moser owns shares of Chipotle Mexican Grill, Panera Bread, and Starbucks. The Motley Fool owns shares of Chipotle Mexican Grill, McDonald's, Panera Bread, Starbucks, and Whole Foods Market and has the following options: short JAN 2013 $47.00 puts on Starbucks. Motley Fool newsletter services recommend Chipotle Mexican Grill, McDonald's, Panera Bread, Starbucks, and Whole Foods Market. 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.