Low Expectations Have Chipotle Primed For Turnaround Short Squeeze

If Chipotle Mexican Grill, Inc. CMG ever gets its act together, the stock has some impressive short squeeze potential. Chipotle’s struggles following 2015 food safety outbreaks have been well-documented. Opportunistic dip buyers such as Bill Ackman have yet to be rewarded for their turnaround bets.

The chart below provides a concise visual summary of the derailment of the Chipotle story. The stock’s share price and revenue had been growing at a steep and steady clip until the second half of 2015. When the e. Coli outbreaks began, sales took a predictable dive.

Chipotle eventually rectified the situation and hasn’t had any major food safety concerns in nearly a year. However, the company’s sales and share prices are still well below where they were prior to the PR nightmare.

The third line on the chart, short interest, is likely one of the major reasons Chipotle shares are having such a hard time gaining traction.

Chipotle’s short interest is up 101.8 percent in the past year. According to shortsqueeze.com, Chipotle now has an elevated short percent of float of 19.4 percent. There are currently 4.9 million shares of Chipotle held short with 3.1 days to cover.

Expectations for the restaurant sector and for Chipotle in particular continue to be extremely low. If the company can deliver a surprise positive data point or two in the near future, a short squeeze may provide traders with a major short-term trading opportunity.