Based on sales, it's clear plenty of people enjoyed a burrito, salad, or quesadilla at Chipotle Mexican Grill (CMG 0.12%) this year. Billionaire hedge fund manager Bill Ackman is also enjoying the restaurant chain, but not necessarily for its food. It's been a great investment for Ackman's Pershing Square Capital Management and now stands as its top holding.
Ackman can buy a lot of tacos
Pershing Square's latest 13F regulatory filing (which details the investment firms' holdings) shows Ackman and his crew owned nearly 744,000 Chipotle shares on May 15. The market value of those shares was nearly $2.2 billion then, giving the fast-casual giant the top spot in the portfolio. Somewhat atypically for an investment firm, Pershing Square likes to maintain hefty stock positions that hover around the same value. Pershing Square's holdings in tech giant Alphabet amount to almost $2.1 billion.
Like many prominent -- and very wealthy -- investors Ackman doesn't shy away from risky bets that can pay off monumentally. For all its business success, Chipotle carries a fair bit of risk as an investment.
Chipotle has been the standard-bearer for solid fundamentals and encouraging growth in the challenging restaurant industry. That's helped the company's share price balloon over the years. Its popularity was so hot that management felt compelled to enact an aggressive 50-for-1 stock split earlier this year to avoid sticker shock on its lofty per-share price.
Chipotle investors pay up for growth potential
Chipotle is also very expensive in terms of valuations; for example, its forward price-to-earnings ratio is a very rich 54-plus. Compare that to McDonald's, which boasts a longer history of fundamental outperformance yet has a forward P/E less than half that, at 24 and change.
However, Chipotle has a number of levers it can pull to keep growth sizzling on the burner. Its Chipotlane pickup drive-thru lane is a clever idea that isn't close to being fully implemented, while its footprint can be expanded into many markets that are under-Chipotle'd. Ackman should expect further growth going forward.
