Chipotle Mexican Grill Takes A Beating
Chipotle has now dropped from $442 to $250 in the last 6 months or so. This crash was about as predictable as they come. For awhile this company had a p/e ratio over 50 which is insane for a large restaurant chain. I remember laughing at Jim Cramer when he was arguing that Chipotle was a better stock to own than Buffalo Wild Wings because the same store comps were stronger. Cramer didn't seem to care that the earnings growth for Buffalo Wild Wings and CMG were almost exactly the same and that CMG had a p/e ratio almost twice that of Buffalo Wild WIngs. Cramer as usual got wait too excited about fast growth and completely ignored the fact that the company was extremely over-valued. Peter Lynch was one of the greatest investors of all time and in his book "One Up On Wall Street" he explains that a growth company is fairly valued when its earnings growth rate is roughly equal to its p/e ratio. This advice has kept me from losing a lot of money by avoiding buying into the over-priced hot growth stock that is getting all of the publicity at the moment.