I recently received a detailed Bloomberg report describing Chipotles malaise having to deal with a food poising crisis. Frankly, a situation that all fast-growing and popular restaurant chains have to deal with sooner or later. After dropping 30% within a very short period of time, the question is: Is it a no-brainer investment opportunity now?
Is Chipotle an Investment Opportunity?
Chipotle’s crisis caught my attention as part of my five idea categories and something that I love researching. I have studied a couple of international food companies that experienced similar crises, including McDonald’s recent Chicken Nuggets escapades in Japan. From experience, it will take a couple of quarters to get over the recent damage to its brand, but I am confident that Chipotle will recover and return to a growth trajectory soon than later. (Better procurement and better inspections). The big question is: They lost over 30% from peak prices, are they cheap enough at today’s prices to make them a steal, a no-brainer opportunity?
At first, glance, looking at standard growth multiples with adjusted earnings forecasts, they still look expensive with lots of growth priced in. It requires some more valuation work and some more fact checks, for example visiting the restaurants, etc. At the moment, I would recommend just putting Chipotle on a watchlist and closely follow it’s price development. For me, it is not a no-brainer – it is just not cheap enough for me. A person who is involved with Chipotle on a daily basis, either through work and or as a regular visitor could come to a different conclusion.
In general, I would consider refraining from any over-hasted and substantial investment in the coming months. We are at the beginning of an interest rate turning point that will unfold over the next 12 months. Holding on to your cash, protecting cash and being extremely selective is the best strategy for 2016.
My Best Investments in 2015
I have been very inactive in financial markets this year strictly following my own investment approach. This year, I have made money with some Japanese stocks, EON and Volkswagen – all category 5 stocks and all worked out for me – but frankly, they weren’t great investments – smaller trades with less conviction except for Volkswagen. I missed Glencore, Takata and maybe Chipotle, but I am not shedding tears about any missed opportunities. I know from experience that you can only invest with full confidence and full commitment, if you really feel comfortable holding an investment even in declining markets, i.e. the investments are with your own circle of competence and you don’t mind holding them for a long period of time. Volkswagen is such a case, where I wouldn’t mind keeping them until the next stock market boom and that could be a decade from now.
When we talk about investing and investing skills, we automatically think of stock investments. It’s a wrong notion! Investing should be considered as a skill that affects all facets of life including investing in ourselves, family and our own businesses, what I call category I investments. I have been recommending readers to invest money in their own businesses or in themselves to improve their earnings power. This type of investment allows you to be in control and you could see an immediate improvement in sales and earnings. My best investments this year (2015), true no-brainer decisions, have been investments in my internet infrastructure and joining an awesome community, that will help boost my earnings power for years to come. I will continue on this path in 2016, unless I come along a true no-brainer investment opportunity, that Mr. Markets* in his erratic ways offers me.
*Mr. Market is an allegory created by investor Benjamin Graham. Graham asks the reader to imagine that he is one of the two owners of a business, along with a partner called Mr. Market. The partner frequently offers to sell his share of the business or to buy the reader’s share. This partner is what today would be called manic-depressive, with his estimate of the business’s value going from very pessimistic to wildly optimistic. The reader is always free to decline the partner’s offer since he will soon come back with an entirely different offer.