Chipotle Mexican Grill (NYSE:CMG) is officially on the other side of the food-borne illness outbreaks that caused customers to shun its restaurants over the past two years, and caused its stock to lose half its value. Yet it's still one of the most heavily shorted stocks on the S&P 500.

A little less than 16% of Chipotle's outstanding shares have been sold short in expectation of its stock falling. That's down from more than 20% at the end of last year, but it's still high for a large-cap stock that's almost certain to climb as it continues to put its 2015 food safety issues in the rear-view mirror.

CMG Percent of Shares Outstanding Short Chart

CMG Percent of Shares Outstanding Short data by YCharts.

Chipotle has the ninth-highest short interest on the S&P 500, at five times the index's average level.

Shorting Chipotle's stock was a good bet a year ago, and an even better bet a year and a half ago, but it most certainly isn't anymore. Chipotle's shares have climbed 30% this year on the back of markedly improved numbers.

In the first three months of this year:

  • Revenue increased 28.1% compared to the year-ago period.
  • Comparable-restaurant sales rose 17.8%.
  • Restaurant-level operating margins more than doubled.
  • Net income was $46 million, improved from a net loss of $26 million.
  • Earnings per share was $1.60, up from a net loss per share of $0.88.
  • And Chipotle opened 57 new restaurants.

These are ominous numbers for short-sellers. And even more concerning for them is that Chipotle's recovery should continue to gain momentum.

It's continuing to open new restaurants in the United States, and is preparing to expand in Europe. It's rolling out deserts. It's made improvements to its supply chain and food-handling procedures. And it's started marketing much more aggressively than it did in the past.

Moreover, as Jim Cramer has said about the burrito chain, it's only a matter of time before customers forget that it had food safety issues in the first place. He asserts that it takes about 18 months for consumers  to let an issue like this go; that timing corresponds to when Chipotle's stock began its current and most meaningful rally of the past two years.

CMG Chart

CMG data by YCharts.

The acceleration of Chipotle's recovery, combined with the high short interest, could play out well for current stockholders. If its share price continues to climb, short-sellers will be pressured to cover their shorts by buying Chipotle stock. This is known as a short squeeze, the consequence of which is a markedly higher share price.

Current and prospective investors in Chipotle have the short-sellers right where they want them.