Time to short Chipotle
A recent investigation prompts layoffs of illegal immigrants, which will surely increase labor costs.
Written by Douglas Estadt
Despite Chipotle Mexican Grill's (CMG) recently reported positive results and its all-too-tasty fajita burrito bowl, we believe shorting CMG will prove to be profitable. The company's steady rise in stock value and its recent earnings report are trumped by its current labor issue and its overrated build-up by momentum players. A recent investigation by Immigration and Customs Enforcement prompted a major layoff of illegal immigrants that will surely increase the company's labor costs. We consider these facts before shorting the stock:
- The massive labor layoff of illegal immigrants means less cheap labor, more expenses.
- CMG's P/E is about 52, while most of its competitors' P/Es are in the 20s range. The stock is quite overvalued.
- The tendency to buy only because a stock is rising leaves investors without all of the facts.
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