“When a stock gets to this level, you just have to sell because the risk-reward becomes awful.”
– Jim Cramer, talking about Chipotle (CMG) on his “Mad Money” TV show, Thursday October 11
Chipotle shares are up 135% year to date and 52% since reporting 2nd quarter earnings three months ago.
Not even their spicy hot salsa can match that.
But one wonders whether Chipotle, which reports 3rd quarter earnings after the close today, can continue to rip.
Some analysts have started to sour on the shares recently.
Citi downgraded the shares to hold on Friday Sept 29.
Longtime fan Morgan Housel of The Motley Fool wondered “How Much Is That Burrito Worth?” on Thursday October 4 and suggested the share price had gotten ahead even of the company’s phenomenal fundamentals.
The real eye opener was Jim Cramer’s sell call to kick off his “Mad Money” program three weeks ago on Thursday October 11.
That Monday, October 8, Robert Baird analyst David Tarantino downgraded Chipotle from Buy to Hold in a piece called “Chipotle’s Valuation May Be Overstuffed” (subscription required) for the same reason these other analysts have started to get nervous: valuation.
Because, let me tell you: THE VALUATION IS INSANE.
Chipotle has an enterprise value over $4 billion and trades for close to 60 times estimated earnings for the next 4 quarters. As Cramer emphasized, that’s twice its revenue growth rate.
Can Chipotle contine to rip? We’re about to find out.