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Gadfly Breaks Down Chipotle: Ackman's Eyes Bigger Than His Stomach

Gadfly Breaks Down Chipotle: Ackman's Eyes Bigger Than His Stomach

Activist investor Bill Ackman disclosed a 9.9 percent stake in Chipotle Mexican Grill, Inc. (NYSE: CMG).

Ackman also noted that Chipotle's stock is "undervalued" and represents an "attractive investment." According to Gadfly's Shelly Banjo and Tara Lachapelle, the billionaire hedge fund manager has "notched more misses than hits lately."

As such, it's only natural for investors to question if his involvement in the burrito chain will prove to be another failure or if he's right about a stock that has lost more than 40 percent over the past year.

Related Link: Chipotle's Recovery: Still Too Early To Buy The Stock, Says Canaccord

Ackman is in "dire need" of a pure activist battle to signal the Street he hasn't lost his touch. He's good at identifying companies with a "clearish path" to cleaning up operations, just like he did at Canadian Pacific (NYSE: CP) when his involvement resulted in the stock tripling in value.

On the other hand, Gadfly suggested Ackman also has an "ego" problem. For instance, his positions against Herbalife Ltd. (NYSE: HLF) and Valeant Pharmaceuticals Intl Inc (NYSE: VRX) were "emotionally charged crusades."

Meanwhile, Chipotle is a "trendy company that investors like to short" and fixing consumer companies is "harder than it looks." In fact, the company's management "seems out of touch" and has spent millions of dollars giving away free burritos and conditioned clients to only eat the restaurant chain at a discounted price.

The company has also spent more than $1 billion in buying back its own stock but this hasn't helped boost shares higher. It's also spending more and more cash in developing new locations at a time when it's suffering double digit year-over-year sales declines.


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Posted-In: Activist investors Bill Ackman Bill Ackman Chipotle Bloomberg Gadfly Shelly BanjoHedge Funds Restaurants General Best of Benzinga