Investors are never at a loss for data on Wall Street. With thousands of publicly traded companies reporting their operating results every three months, and economic data rolling out with regularity, it can be easy for something important to slip through the cracks.
On Aug. 14, arguably the most important data dump of the entire third quarter occurred — and there’s a possibility you missed it. This was the filing deadline for institutional investors with at least $100 million in assets under management (AUM) to file Form 13F with the Securities and Exchange Commission. A 13F provides an easy-to-understand snapshot of which stocks Wall Street’s most-successful asset managers purchased and sold in the latest quarter (in this case, the June-ended quarter).
Cohen’s Point72 takes a big bite out of this outperforming stock-split stock
Among the numerous holdings that Cohen oversaw the addition to in the June-ended quarter, arguably none stands out more than fast-casual restaurant chain Chipotle Mexican Grill (NYSE: CMG). Chipotle completed its first-ever split after the close of trading on June 25. The magnitude of this split, 50-for-1, was one of the largest in the history of the New York Stock Exchange.
During the second quarter, Cohen’s fund purchased 1,458,700 shares of Chipotle, which increased its March-ended stake by a whopping 446% to 1,785,950 shares. Similar to Nvidia, this share count has been adjusted to account for the company’s split.
The lure that likely attracted Point72’s brightest investment minds to take a big bite out of Chipotle’s stock is its many well-defined competitive edges.
Differentiation has been a big reason Chipotle Mexican Grill has been able to stand out in the highly competitive restaurant landscape. Its pledge to use responsibly raised meats that are free of unnecessary antibiotics, as well as source vegetables locally, when possible, has resonated with consumers.
Just as grocery stores capitalized on the organic/natural food trend two decades ago, Chipotle’s management team quickly realized that its customers would gladly pay more for higher-quality food. Given that food costs have notably risen over the last couple of years, this pricing power has come in especially handy.
The lift Chipotle’s business has enjoyed from the introduction of Chipotlanes — drive-thru lanes devoted to fulfilling mobile orders — needs to be recognized, too. Mobile ordering has added a new dimension to the company’s sales channels, as well as helped introduce the brand to Generation Z.
While there’s no denying that Chipotle Mexican Grill has handily outperformed expectations since becoming a public company in January 2006, the one aspect that might leave a bad taste in the mouth of investors, including Steven Cohen, is its valuation. Though Chipotle is worthy of a premium to its peers, the company’s forward price-to-earnings (P/E) ratio of 45, as of Oct. 11, is a bit excessive for a restaurant chain.
With some of its organic growth being driven by higher prices and not additional orders, it makes the company’s outsized forward P/E ratio even more egregious. There is, after all, only so much innovation that can be expected from a restaurant chain.
Although billionaire Steven Cohen has invested in a truly supercharged stock-split stock, its near-term upside looks to be limited.
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Billionaire Steven Cohen Sold 87% of Point72’s Stake in Nvidia and Is Piling Into This Supercharged Stock-Split Stock was originally published by The Motley Fool
