timwest
Short

Chipotle Mexican Grill - CMG - Daily - Low risk short sale here

NYSE:CMG   CHIPOTLE MEXICAN GRILL
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CMG is rallying towards the half-way-back level of 548 from its recent high volume decline. The rally is on lower volume , which implies a weaker rally. The "EARNINGS SUPPORT and RESISTANCE" is also playing into this trade and the rally will very likely be halted at the 548 level from remaining sellers from the last earnings report.

Keep in mind that CMG is rich in valuation, trading at 5.2 times sales. That is a crazy level of valuation for a restaurant stock. Sales have more than doubled in the last 4 years, which is a growth rate of 18%. After-tax margins are hovering near 10%. However you look at it, CMG is priced for massive growth and profits. The free cash flow is $300 million, which is less than 2% of its market value today. If you bought CMG today, that would be your return: 2%. Granted, that number is growing but so are the competitors. QDoba's are opening all over my area, for example. It will take another 4 years for this stock to grow into it's current valuation, in my opinion.

Suggestion: Sell short: 548 stop. 502 target. Risk 1 ATR. Reward 3 ATR's.

11:36AM EST, May 28, 2014 536.96 last +0.92
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