The story of Chipotle (CMG – Quote) is amazing… yes, they only make burrito’s but Chipotle stock is at $657/share AND it’s the story of the American Dream. We’ll get to that high share price in a minute, but first let’s celebrate Chipotle’s background (from Wikipedia):
“…Founder Steve Ells, attended the Culinary Institute of America in Hyde Park, New York. Afterward, he became a line cook for Jeremiah at Stars in San Francisco.[16] There, Ells observed the popularity of the taquerías and San Francisco burritos in the Mission District. In 1993, Ells took what he learned in San Francisco[17] and opened the first Chipotle in Denver, Colorado, in a former Dolly Madison Ice Cream Store near the Denver campus using an $85,000 loan from his father.[15] Ells and his father calculated that the store would need to sell 107 burritos per day to be profitable.
After one month, the original restaurant was selling over 1,000 burritos a day.[18] The second store opened in 1995 using Chipotle’s cash flow, and the third was opened using an SBA loan. To fund more growth, Ells’ father invested $1.5 million. Afterwards, Ells created a board of directors and business plan, raising an additional $1.8 million for the company.[19] In 1998, the first restaurant outside of Colorado opened in Kansas City, Missouri.[20] Ells had originally planned to use funds from the first Chipotle to open a fine-dining restaurant, but instead focused on Chipotle Mexican Grill when the restaurants saw success.[21][22]
In 1998, McDonald’s made an initial minority investment in the company. By 2001, the company had grown to be Chipotle’s largest investor.[15] The investment from McDonald’s allowed the firm to quickly expand, from 16 restaurants in 1998 to over 500 by 2005.[23] On January 26, 2006, Chipotle made its initial public offering (IPO) after increasing the share price twice due to high pre-IPO demand. In its first day as a public company, the stock rose exactly 100%, resulting in the best U.S.-based IPO in six years, and the second-best IPO for a restaurant after Boston Market. The money from the offering was then used to fund new store growth..” [visit Wikipedia to see source footnotes]
Can you imagine asking your father for the investment?
“Dad, I want to open a store that makes burritos…” Oh, by the way, McDonald’s (MCD) is going to end up being a majority owner AND we are going to be one of the top two IPO’s of a restaurant EVER.” WOW…
All that being said, I see a couple things that might cause Chipotle stock and the “burrito world” some trouble:
- I see 5 waves complete or set to complete. I’ve been watching CMG for a while and it’s showing some clear signs of losing momentum.
- If you go back to the post hyperlinked in the bullet above you’ll see that I had used the “log scale” to draw “the” key trend line from the low in 2008. A copy of that chart is here:
Chipotle 5 Wave Chart (pre-correction)
Note, during last month’s volatility Chipotle stock corrected right back to that trend line and bounced… (shown by the light blue boxes along the trend line). Here’s an updated chart.
Chipotle 5 Wave Chart (post-correction)
If long CMG, then I would be cautious. It certainly does appear we have 5 waves complete or set to complete soon.
Our first hint that the burrito king has lost its luster would be a weekly close below the rising lower log trend line… at that point, it might be time to cut and run.
What an amazing story and amazing run. Thanks for reading the post!
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No position in any of the mentioned securities at the time of publication. Any opinions expressed herein are solely those of the author, and do not in any way represent the views or opinions of any other person or entity.
