A week ago today, David Einhorn of Greenlight Capital presented a short thesis of Chipotle (NYSE: CMG) at the Value Investing Congress. The crux of his argument seems to increasing competition from Taco Bell (specifically its new Cantina Bell menu) will slow CMG's growth and therefore CMG will trade at a lower multiple.
Einhorn is trading on the mis-perception that Chipotle has fundamentally different customers than Taco Bell and instead believes that CMG has no true moat and Taco Bell is the "new" entrant into its business that will lower prices/growth.
I will leave that customer-oriented discussion to the multitude of opinions out there, and believe that it is overall very tough to tell without surveys etc. Suffice it to say, CMG management believes such a moat exists, and Einhorn/Taco Bell believes it doesn't.
What I want to add to is the comparison of CMG and GMCR shorts.
People have been comparing this trade to the now-famous short-GMCR from last year, and a year later GMCR has declined from 80s to 20s. There is a key difference however.
GMCR had accounting irregularities (huge capex/inventories), negative free cash flow, and increasingly opaque (possibly misleading) management, reducing disclosures from one year to the next.
I haven't seen that from CMG, and as such believe this is more a valuation trade - and like Tilson shorting NFLX, is far more difficult.
-Stanley
Update:
Forbes article containing customer overlap (75%+ according to Greenlight's survey)
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