Bear's Sell Rec: Chipotle (CMG)

I have made my thoughts about Chipotle (CMG) known many times and won’t spill more ink here except to provide links:…
and for RB:…

Those are some lengthy threads, and dated. I’m just saying, I’ve been singing this tune for a long time.

But Brian Stoffel, one of my favorite Fool writers, has applied his “Antifragile” framework to CMG. If you’re a RB member you can read it here:…

Short version: CMG ranked near the bottom of all stocks he’s evaluated.

Brian’s last point may be my favorite, and I couldn’t agree more:

I don’t normally pay too much attention to valuation, except where there’s a narrow moat and not much optionality. That’s the case with CMG, and trading at 44 times trailing FCF, I think it’s still too expensive.



Bear, the only reason anyone would still be in Chipotle is because I used to be $400 higher, two and a half years ago, and they can’t bring themselves to abandon the dream, and put the money to productive work. Just think if you had money in Chipotle over the past wonderful year, with your stock just drifting down while everything else was shooting up, but just hoping it would become a wonder-child again. It’s the opportunity loss that hurts.


I’ve always been leery of restaurant stock, though I’ve owned a few (including CMG quite a while ago). There’s just so many things that can go wrong. Maybe you’ve forgotten, but Jack-in-the-Box killed a customer with e Coli in 1993. The company almost did not survive.

There are too many other, better alternatives. Every investment comes with unknown risks, but restaurants are almost in class all by themselves with known but uncontrollable risks.


I think like any other stock, it really depends… I’ve done very well over the past few years with TXRH… slow and steady performer, easy to understand business. Never been to one, but supposedly their dining rooms have a long wait every night. Getting rich slowly with that one.


Thank you for this SIGNIFICANT game-changing lesson Saul. Price anchoring such as this along with going from +/-50 names down to 15-ish have been the biggest changes I’ve made and many of us have made, are in the process of making in the last year. Both nuggets of wisdom are thanks to you Saul. My children, wife and I thank you so very much! You are leaving a legacy for those of us and our families who have been fortunate to learn from your. Believe I speak for most all of us who follow your message board by expressing our deepest gratitude for your generous sharing of wisdom.


I think like any other stock, it really depends…

I agree with you, Todd.

I bought shares of CMG years ago. My recollection is that the company was growing fast, and I do love the restaurant business, so it was sort of a fun investment for me. I finally sold when it appeared the health-related issues were recurring, but I still did very well and have no regrets whatsoever.


I would think that restaurant investing is even harder than retail…

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When it comes to restaurant stocks, I have always believed that it has to have something really special to make it. MCD, CMG, TXRH, BWLD, and even SBUX have that special something. CMG had it but like DRI, is losing “it” slowly now.

Most copy cat stocks in this sector, like retail, never really make it.

IMHO, as with retail stocks, the real money to be made is in the first 15 years when they begin their expansion. Double the amount of stores along with 2-4% increase same store sales and you have a winner in the making, for a while at least.

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Thanks, Bear for posting this. I recently ran across Brian Stoffel, and his thoughts around “Antifragile.” It was so interesting that I printed his explanation, and want to figure out a way to apply it to my current investments. If I’m successful - it would be great to apply the methodology to companies that are on my watch list.

And NFLX dang…It’s soared to over 20% of my portfolio even though I sold a piece last year.

Happy Friday to all,

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And NFLX dang…It’s soared to over 20% of my portfolio even though I sold a piece last year.

That’s one I’m continually wrong on, but finally couldn’t take it anymore and now have red thumbed it. It’s now a $117 billion company…that’s simply huge for the entertainment industry. For context, the 100 year old goliath, Disney, is worth $170 billion. Netflix has less annual revenue than Disney has each quarter.

If NFLX doubles from here, something is wrong. They’ve done a great job growing, and telling a great story, but there’s no way the valuation makes any kind of sense.



Bear, the only reason anyone would still be in Chipotle is because I used to be $400 higher, two and a half years ago, and they can’t bring themselves to abandon the dream, and put the money to productive work.

I’m guilty of this. There is another reason, however, for not selling when I should have. Any positions owned prior to 2009 are not subject to any taxation in Germany, which includes all of my positions.

So not losing roughly 30% on taxes had me lose about 50% of my investment as well as the upside of anything else I would have bought (virtually everything I bought over the last 2 years, except for TTD, has gained value).

One can always find a justification for doing something really stupid.

For what it’s worth, I did learn from you and the others, dumping quite a lot of companies I probably would have have kept a lot longer had I not been introduced to your great message board, and it has made a significantly positive impact on my portfolio returns.

Chipotle (? fewer shares as of today - thanks for shaming me Bear!) and Nuance are the last holdouts. :slight_smile:



Bear and Tracy,

I’m flattered by the kind words. I have no idea where NFLX will end up, but thought it appropriate to post my NFLX run-through for those who are interested. In the end, the company got 7 points, which isn’t outstanding, but is still pretty high.

Greetings Fools,

Using my Anti-fragile framework, I wanted to show how NFLX stacks up.

Barbell Strategy

Mission Statement
Reed Hastings is a brilliant man and this entire page is worth a read. I wish he could just simplify it down to a sentence, but this is a good starting point:…

In general, it seems to me that Hasting’s mission is (last sentence from above page): “to lead the transition from linear to Internet TV by offering an amazing entertainment experience.”

Simple: Yes, if I’m an employee, I either ask “Will this help the transition to Internet TV?” or “Will this provide an amazing entertainment experience?”
Optionable: Not as much. Don’t get me wrong, Netflix has already shown incredible optionality. But on the basis by which I’m judging this, Hastings clearly states that Internet TV is the core medium he’s going for.
Inspirational: Definitely

+1.0 points


Brand: This is definitely the most powerful part of Netflix’s moat. Not only is Netflix’s brand important, but the popularity of its original programming is vital. That’s the hook. That’s what gets new users to sign on. With such a low price point, that’s all that’s needed to seduce a non-user to join.

+1.0 points

High Switching-Costs: Ok, so this is going to sound a little kooky – but I actually think Netflix has the advantage of ridiculously low-switching costs. But that’s a good thing. I wrote an article about it here:…

Here’s the key takeaway:

I’ve always been concerned about the robustness of the company’s moat…
Then I stopped worrying, because … it simply doesn’t much matter what the company’s moat is.
Here’s what I mean: My wife and I have been Netflix subscribers for over a decade. We go through spurts where we binge watch shows … and periods when we don’t watch anything at all on it. We like the original content, but we like other stuff, too. We even pay for other services, like Amazon Prime Video.

But we’ve never once considered cancelling our subscription. The monthly payments are auto-billed, and are so low that we don’t even really notice them when they pop up on our credit card statement. At this point, adding additional streaming services like Hulu or HBO Now wouldn’t mean that we’d think about dropping Netflix. The new and the old would just supplement each other.
I’m not sure what to call this, but at this point, the price is so low, and the payment automatic across the board, that I have to believe that retention of users beyond one year is pretty high.
+1.5 points

Network Effect: This isn’t the strongest, but worth mentioning. Netflix’s original content is really the key driver. The rest of the stuff is legacy and nice to have, but the original stuff is where the leverage is. The network effect takes hold when each additional user adds value to the service.

I would argue that my brother subscribing doesn’t add all that much value to me. Except that each additional user gives the company $100 or so more dollars per year to spend on original content, which makes the service more valuable. The roster of subscribers literally means that there’ll be a higher liklihood of quality content.

+1.5 points

Like I said above, I don’t necessarily think there’s a ton of optionality left for Netflix, but we can’t ignore the fact that I probably would have written the same thing ten years ago – unable to understand what a big deal streaming would be.

While the pivot from DVD to streaming was painful, Hastings had the guts to kill his cash cow in order to remain relevant in the decade to come. That’s literally what Blockbuster was unwilling to do, and why it didn’t survive. The further pivot to original content was further proof of optionality. And of course, the company is doing a great job of taking low-risk, high-reward bets on specific programs as well.

+2.0 points

Skin in the game

Role of founder: Hastings is CEO
+1 point

Insider Holdings As of the last proxy, insiders together owned 4.9% of shares outstanding. Hastings owned 2.7% of shares outstanding.
+0 points

Glassdoor: The company has a 3.7 star rating (out of 5).
+0 point

Financial Fortitude

Financial statements
Cash: $1.75 billion
Debt: $4.9 billion
Free Cash Flow: ($2.1 billion)

Remember the importance of original content I talked about? Well, it ain’t cheap. Neither is setting up shop in virtually every country in the world (sans China). While I obviously think that’s the right move, we can’t ignore the financial fragility it introduces into the equation.

While I don’t think some kind of unpredictable event that I can’t think of (i.e. who would have predicted Qwikster before it happened?) would bankrupt the company, it would definitely weaken it, relative to the competition, if it were to hit

-1 points

Concentration Risk
0 points

Total Score: 7.0 points

I’ve run companies through this framework for well over a year, but I do it anew every time (I find that doing so…while laborious…forces me to be more aware of the current situation). As such, I don’t have a huge database to draw from. This lands NFLX near the middle of the list, though I suspect if it included all publicly-traded companies, it would be pretty high.

The view from 30,000 feet is pretty easy to understand: the company’s low price and automatic payments give it a surprisingly strong moat. And it certainly has optionality when it comes to programming. At the same time, the balance sheet is levered enough that some type of disruption (imagine if Netflix or its subscribers had to start paying significantly more for the bandwidth it requires) could be a huge blow.

See all my holdings here:

What is Antifragile framework and how has it performed?

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I slummed a bit on the CMG board last year, kind of like trying to not look at the train wreck and failing. Anyway, just when things got really bad, a famous and well-liked TMFer personally re-recommended the stock basically because he believed that the company will return to its former glory.

Unfortunately, CMG is more like Whitney Houston ( )than Elvis Presley ( )