Lioness Associates, Inc.

Economic & Corporate Risk/Yield Reports

October 30, 2012  -- Chipotle Risk/Yield Update for 2012

Refer to Reading Graphs for information on interpretation of the graphs.

Note, the algorithms used to generate the graphs has been updated and the new graphs are provided. 

Examining the astrological configurations in more detail — existing investors may like what they see for the direction of the company but, new investors are not buying it and are likely in a "wait and see" mode.


July 24, 2012  -- Chipotle Mexican Grill Risk/Yield for 2012

Chipotle Mexican Grill disappointed investors with its last earnings and the stock has dropped from the 400s to the low 300s with some analysts predicting more decreases (see article).

The PE of this company's stock was approximately 44 before the earnings and that was a result of the high expectations of investors.  There are some analysts indicating that the PE may belong closer to 30 but, as I've stated previously (see CRM article), the PE is a reflection of what investors are willing to pay and can not easily be determined by an analyst.

Looking at the CMG IPO 2012 Risk/Yield graph, a yield momentum was evident from the start of the year until the July period and that momentum has now dissipated and will continue to fall until the later part of the year.  While there were more head-winds for this company during the early part of the year, these were not noticeable as the general stock market was helped by both the global economy and the USA economy - the phrase "rising tide lifts all ships" comes to mind.  Note, the graphs for the USA economy are located on the home page while the global graphs are located on the "Global Perspective for May/June 2012" page. 

While there were Core and Transient Risk factors (see CMG IPO 2012 Delta Core/Transient graph) at beginning of the 2012 year, their impact was minimized by the momentum of the general market.  During the spring when the global and USA economies were faltering, this company while it also faltered, still has momentum to stay on course for longer even if it could not rise higher.  During the June/July 2012 period -- the momentum into Yield peaked and with the earnings release, the strong wind went out of the sails.  This likely dampens expectations for this company and the pessimism might continue for a few more months. Also, later in the year as the momentum passes from Yield into Risk, the potential of the company and the stock might be further questioned. At that point, the USA economy is expected to be rising or may have peaked (current projections are expectations of a fiscal cliff near the end of the year for the USA).  I suspect that at the minimum, there will be volatility in this stock at the end of the year.

There are also two additional graphs for CMG.  These are the Incorporation graphs and show a slightly different but, still compatible view.  Note, the IPO graphs of a company are from an investor perspective while the Incorporation graphs are from the perspective of the company.  The CMG INC Risk/Yield illustrates a downtrend starting earlier this year and hitting a low point in July of 2012.  The rest of the 2012 year appears to have a Yield momentum.  Note, this might not necessarily translate into an increase in stock price as the company perspective is "long term" rather than "short term" profits.  The CMG INC 2012 Delta Core/Transient depicts the same peaks with the move into Risk in the July 2012 period.

Examining the data points more closely, the CMG INC data points indicate that future focus is likely to be divided between locations in existing countries and locations in new countries.  This company seems ripe for expansion into some Euro-zone countries and at this time, the implementation costs might be less but, the supply chain logistics for a chain like this might be exceedingly difficult to implement given the company's emphasis on "food with integrity". It's likely that  August of 2012 will have a focus on planning expansions while September is likely to move into a quasi-implementation phase although, maybe not evident to the casual investor.

Just a note that our previous discussion about Yum Brands (YUM)  (see article here) identified that the new offerings from YUM Brands could compete with higher priced chains like Chipotle Mexican Grill similar to how McDonald's Corp (MCD) brought out "better coffee" and became a competitor of Starbucks (SBUX) at a certain price level. Indirectly, it might be possible that YUM Brands might increase consumer awareness of Mexican food that could potentially benefit Chipotle Mexican Grill when consumers look for a "gourmet" version of the food.

It would be remiss not to mention the similarities of Chipotle Mexican Grill with a company like Whole Foods Market and Netflix. It's similarity with Whole Foods Market is the customer that both attract - ones that want the "good food" and may be in an upper income bracket.  The similarity with Netflix lies in them both being high-flyers that get their wings clipped -- at least for now.


Disclosure as of 7/24/2012 - Chipotle Mexican Grill (CMG) is not part of our portfolio at this time.