Bill Ackman Sticks With Chipotle Despite 33% Decline In Shares

Bill Ackman’s massive $224 million bet on Chipotle Mexican Grill, Inc. CMG may be down 33 percent in a little over a year, but Ackman’s most recent letter to Pershing Square investors assured them everything is going according to plan.

Unfortunately for Ackman, the market doesn’t share his enthusiasm for Chipotle. The stock is down 25.9 percent year-to-date and has fallen below $280 for the first time since early 2014. Much of 2017’s declines can be written off as short-term volatility while investors get a clearer picture of Chipotle’s longer-term financial outlook, Ackman said. 

“We believe the volatility is driven by the fact that the value of the company is highly dependent on investors’ estimates of future growth, average unit volumes and store margins,” Ackman wrote.

“When these investor estimates change, the associated discounted cash flow calculations lead to widely varying estimates of intrinsic value, which ultimately drive the stock price.”

Once Chipotle starts demonstrating consistent improvement in these metrics, volatility in the stock will be to the upside once again, Ackman said. 

Chipotle stock remains one of the best long-term investment opportunities in the restaurant space in Ackman's view. Customer sentiment can turn on a dime and management is pulling all the right strings to right the ship, he said.

Chipotle recently launched a major update to its mobile app that includes quick reorder, more customization options and both Apple Inc. AAPL and Alphabet Inc GOOG GOOGL Android pay options.

Chipotle is Ackman’s third-largest holding and is one of the primary reasons Pershing has generated a year-to-date net loss of 4.3 percent.

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Photo courtesy of Chipotle.