IN 2017, SHORT a $400 co. Again, Again and Again. Here's Why:"Chipotle" . Sounds pretty fancy, and that's what they were going for until they served up truckloads of what one should only have to fear when visiting deep in Mexico - and that is the dreaded E. Coli Burrito . When it comes to E. Coli - read and think "human feces".
Their training and restaurant standards sucked - AND THEY HAD TWO CEO's, so a lack of definitive decisions and damage controls set the course and made all these situations worse and when the writing was on the wall? THEN one of them bailed... but you gotta understand what has cemented Chipotle's demise because CHEAPOTLE IS A BK. Read the following and you decide - then look at the charts...
Hemorrhaging money after the turd burrito incidents which were so widespread they repeatedly made National news. THEY BORROW OVER A BILLION DOLLARS - READY FOR THIS - BUYING THEIR OWN STOCK BACK!! (ALL AT HIGHER LEVELS THAN THE $405 IT'S TRADING AT TODAY).
THE MOST RECENT DEAL THEY MADE TO RAISE CASH IS THE LAST SCREW IN THE TOILET SEAT.
Their largest shareholder gave them a final $700 million and forced them to use their last assets to secure said loan and stay afloat - as they put up the real estate the stores are sitting on to secure this last, private loan. Sounds like he may come out of this smelling pretty fresh.
1) CMG is still trading over $400 despite repeated downgrades.
2) Even with all the downward direction from the previous quarter, the company disappointed w lousy earnings and more downside surprises last month
3) They are literally keeping this together by talking about how customers are coming around again and they are confident that "new and innovative menu items", and "new server training to improve the customer experience" will take effect soon. Sounds like nothing more than what was in that bad batch of burritos.
4) This company needs a literal miracle to save it -- and when did you last discover a potential BK where the stock was trading at over $400?
The catch is this buyback money - because it is being used to prop up the stock in the face of steady selling, and that means you cannot just dump a single commitment into a bunch of put options. You can trade around the isolated buys and they stick out prominently in the charts. I got lucky when it fell over 20 points in a day - so the potential for wicked volatility is amazing and I am hooked trading this stock via puts and calls.
RECOMMENDATION -- FOR AGGRESSIVE TRADERS
I recommend vertical bear spreads using BOTH puts and calls because of the wild premiums, and the sporadic buys. You can trade these as they come closer to expiration if you are near the money, and use the volatility to unload one leg of your spread if it makes sense at the time.
AS YOU APPROACH EARNINGS, CONSIDER STRADDLING - near term. Earnings calls can produce some really crazy moves. The volatility number Marketwatch assigns is a 33.
Bottom line? Despite all the buyback talk, the downtrend is intact and short of some unforeseen miracle - I do not see how this company can turn it around and survive.
if anybody finds something they think I am missing here - please feel free to share..
