Financial magazine Barron’s says that Chipotle Mexican Grill, Inc. (NYSE:CMG)‘s stock is quickly losing the shine and attraction that made it one of, if not the hottest stock in the industry, from late 2012, through early 2015, during which time it nearly tripled in value. Already down now by nearly $120 from its all-time high in early February, Barron’s believes the stock could plummet another 15% to 20% if its growth doesn’t reverse course in a hurry. In April, Chipotle Mexican Grill, Inc. (NYSE:CMG) reported its first quarter earnings, which missed the Street’s estimates. Its net income increased to $122.6 million, or $3.88 per share, from $83.1 million, or $2.64 per share in the same period last year. Revenue increased to $1.09 billion from $904 million a year ago, but the consensus revenue estimate was around $1.11 billion. A few months back, Chipotle also said that its removal of pork from one third of its restaurants will hurt its sales this year. Barron’s says that Chipotle Mexican Grill, Inc. (NYSE:CMG)’s stock could fall below $500 per share when all is said and done. According to Barron’s, the major reasons behind Chipotle’s fall are rising food and healthcare costs. Chipotle reached its peak closing price of $726.63 on February 3, but has since fallen by 16%. On Thursday, Chipotle gained 0.49% to close at $609.56. The food chain has a 52-week low of $575.92 and a 52-week high of $727.97.
Barron’s latest report about Chipotle is of formidable importance, but we shouldn’t make a bet on any company based on a single source. Hedge funds’ activity and insider sentiment are of cardinal importance when it comes to a company’s stock analysis and future possibilities. In the case of the former, 37 of the hedge funds we track at Insider Monkey were bullish on Chipotle at the end of first quarter, whereas 35 hedge funds were betting on the company at the end of the fourth quarter of 2014. This shows a 5.40% increase in hedge funds with holdings in the company. However, the total value of hedge funds’ investment in Chipotle at the end of the first quarter was around $1.14 billion, whereas a quarter earlier, the total ownership value was around $1.21 billion, which depicts a 5.78% decrease in the total value of the ownership positions. The stock decreased by 4.9% in the first quarter. Overall, Chipotle had neutral hedge funds sentiment.
We at Insider Monkey strongly believe in the importance and value of tracking hedge funds’ positions in companies because hedge funds spend large amounts of resources, time, and money to decide their bets on companies. Our experts analyzed the historical stock picks of small-cap companies made by hedge funds and found out that the funds performed far better betting on these companies than they did on large-cap stocks, which is where most of their money is invested and why their performances as a whole have been poor for a number of years. A portfolio of the 15 most popular small-cap stocks among funds outperformed the S&P 500 Total Return Index by 95 basis points per month between 1999 and 2012 in backtesting. The exceptional results of this strategy got even better in forward testing after the strategy went live at the end of August 2012, returning more than 135% and beating the market by more than 80 percentage points since then, and by 4.6 percentage points in the first quarter of this year (see more details on this).
Insider transactions help a lot in understanding how a company’s own management feels about its prospects. For Chipotle Mexican Grill, Inc. (NYSE:CMG), there were no insider purchases recorded in 2015. However, in May of this year, there was a significant selling of shares by the company’s insiders. Steve Ells, Chairman & Co-Ceo at the company sold 588 shares of the company at $633.36 per share on May 21, while Montgomery Moran, Co-Chief Executive Officer sold 171 shares of the company at $636.10 per share on May 19.
Let’s move on to the hedge fund sentiment in Chipotle Mexican Grill, Inc. (NYSE:CMG) of late.
How are hedge funds trading Chipotle Mexican Grill, Inc. (NYSE:CMG)?
With hedgies’ sentiment swirling, there exists a few notable hedge fund managers who were boosting their holdings in Chipotle substantially.
Citadel Investment Group, managed by Ken Griffin, holds the largest position in Chipotle Mexican Grill, Inc. (NYSE:CMG), worth $147.2 million, comprising 0.2% of its 13F portfolio. Jim Simons’ Renaissance Technologies has the second-biggest stake in the company, worth $140.3 million. Peter Rathjens, Bruce Clarke and John Campbell of Arrowstreet Capital, John Overdeck and David Siegel’s Two Sigma Advisors, and David. E. Shaw’s D E Shaw are some of the other notable hedge funds having stakes in Chipotle Mexican Grill, Inc. (NYSE:CMG).
Chipotle Mexican Grill, Inc. (NYSE:CMG) has neutral insider sentiment and hedge fund sentiment. The company has already hinted at a possible decrease in its sales after the removal of pork from some of its restaurants. The latest report from Barron’s also paints a bleak picture for the company’s future prospects. We don’t currently recommend a “Buy” for Chipotle Mexican Grill, Inc. (NYSE:CMG).
Disclosure: None
