This is yet another continuation of our discussion on over excessive PE Ratios. I have been backing Chipotle (CMG) since their IPO (Initial Public Offering) in January of 2006. I still remember the first time I ate at Chipotle (I fell in love). Chipotle is by far my favorite place to eat. I would actually like to take this opportunity to make a note to my readers:
When I die, please, someone put a fajita burrito with steak from Chipotle in my coffin.
Though I love Chipotle more than anything in the world, I cannot continue to support the stock. Notice I said, “stock” and not “company”. Believe me, there’s a difference. Why can’t I support the stock anymore? Chipotle is boasting a PE ratio of almost 80 and a next year PE of 56, which means it is becoming quite expensive and overvalued. Yes, they have 26% growth for the next five years, but hey, look what happened Crocs (CROX), Blue Nile (NILE), and Jones Soda (JSDA). These are all great companies, but I think the investors get a little ahead of themselves. I predict Chipotle will come down a bit, not as significantly as Jones Soda did, but enough to make me not want to be invested in them at the moment. Lately the stock has been doing amazing, so I am taking these opportunities to sell little by little. Peter Lynch always emphasized in his writings that a majority of investors are constantly feeling good and bad about companies at precisely the wrong times. By this I mean, when everyone seems to think a certain company is solid, something happens and the stock takes a U-Turn. Of course, this is not always the case, but it’s something to think about when looking at how well Chipotle’s stock has been doing as of late.
Though it pains me to write this article (it feels like I’m disowning a son), I am trying to take this as a sign that I am growing as an investor. Rule #1: Never fall in love with your stocks. Also, when Chipotle comes down a bit, I will be the first one to start buying this wonderful company again.
- Matt
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