I have been a Chipotle Mexican Grill (NYSE: CMG) fan and shareholder for almost a decade. I love the company 's food and the investor in me has long believed in the growth potential of the concept.
My optimism forced me to keep all my stock during the food security crisis. I even added to my downhill position.
Although I still think that long term optimism is warranted, I decided to sell some of my shares. Here's why.
1. The big catalysts are in the rearview mirror
The Chipotle stock is a rocket since Brian Niccol was named new CEO.
Niccol made some good moves in his first year in the corner. He brought back chorizo and continuously expanded the vegan options of the chain. He entered into a distribution partnership with DoorDash and put a renewed emphasis on digital channels. Niccol is also experimenting with pick-up options and has finally launched a loyalty program. It's even set as a goal to reduce the food waste of the business.
The first signs show that these simple movements seem to work. Traffic at the store level is moving in the right direction, but at a moderate pace. Wall Street has significantly increased the stock in response.
The disadvantage for investors is that the simplest solutions have already been picked. The company has already implemented its list of obvious changes that would spark enthusiasm for the company (with the exception of the addition of breakfast).
2. The optional future is gone
Much of my optimism for Chipotle was based on the belief of former CEO Steve Ells that the company model could be applied to other types of food. The company launched a pizza chain called Pizzeria Locale, an Asian kitchen chain called ShopHouse Southeast Asian Kitchen, and a bunch of burgers called Tasty Made, all of which sought to promote Chipotle's strength.
I love when a company is ready to make small bets like this one. If they work, it can add another avenue of growth and generate years of outperformance. If they fail, it does not cost so much to the company.
Unfortunately, Chipotle has acknowledged his defeat against ShopHouse and Tasty Made. Local Pizzeria is still alive, but the company has closed five sites in 2018. It is unclear whether Chipotle will ever put the resources behind Pizzeria Locale to allow it to spur growth in the number of needle transfers.
3. The price is correct
The Chipotle stock has been a winning monster in the past year. With shares currently trading around $ 700, the stock is trading 45 times more than next year 's earnings estimates. I think the valuation is the price in a lot some good news.
I'm optimistic that the recovery will continue, but I'm not sure it will happen at the rate that Wall Street is currently waiting for. If the company is falling or has other food safety problems, the stock price could be hit hard.
In other words, Chipotle shares simply do not interest me at $ 700, just like it was at just over $ 250 a little over a year ago.
4. Best places for money
It is always difficult to determine when to sell a stock. However, as Chipotle currently accounts for over 4% of my portfolio and I have other shares to buy, I think that reducing some of my position makes sense.
Where will I reinvest my profits? Here are five actions that I would happily buy more today:
I am still a bull
I want to emphasize that I am always optimistic about the future evolution of Chipotle's stock. I am hopeful that the company's recent shares will continue to generate comparable store sales growth and operational leverage that will result in gross gains in net income. That's why my plan is just to reduce my position, not to leave it completely.
Thus, as soon as the trading rules of The Motley Fool allow, I will sell some of my Chipotle shares and reinvest the proceeds elsewhere.