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Two Stocks Hotter Than Apple, But Avoid Them Now – Netflix, Inc.,and Chipotle Mexican Grill, Inc.
Who would have thought that Burrito Bowls and Red Envelopes would be hotter than the I-pad in 2010? Sounds crazy but it’s true. By looking at the YTD performance chart from Yahoo! Finance you can see that the stocks for Chipotle Mexican Grill (NYSE:CMG) and Netflix (NASDAQ:NFLX) have significantly outpaced Apple Inc.’s (NASDAQ:AAPL) stock price so far this year.
All 3 companies have tremendously successful business models and management teams who understand how to create wealth for their shareholders.
There is no question that Chipotle has a great product at a great value for their customers, our firm frequents Chipotle on a weekly basis. Positioned between casual dining and quick service restaurants, Chipotle offers better quality food than quick-service chains, at lower price points than casual dining chains. Likewise Netflix’s movie rental service, which charges a low monthly fee for unlimited rentals and downloads, provides a compelling value proposition. Netflix’s broad selection of content and its convenience factor is virtually unmatched by any existing competitors. And who doesn’t know someone who owns an i-Phone, i-Pod or i-Pad these days? From an investor’s standpoint, it is no doubt that these firms are doing a great job of rewarding shareholders so far this year by following what we call a wealth creating strategy of growing a profitable business. However, not all good businesses make good investments, a principal starting point for conversations with many of our institutional clients. Often times these high quality companies gain momentum and their expectations become high and their stock becomes overvalued.
Think of it from this perspective, if you were offered your choice of a new car between a 2011 Mercedes Benz SL600 or a 2011 Chevrolet (GM) Impala, the obvious choice would be the Mercedes as it is the more luxurious of the two and the all around superior vehicle. As investors we understand the importance of value, so what if you were offered the same two vehicles except the Mercedes price tag is $1 million and the Chevy retailed for $100? The Mercedes is still the superior vehicle no doubt, but which is the better investment? Note: Despite unpopular perception if you value your Chevy at $100, call me, I am a buyer!
Under the same principals of understanding value, we will now take a look at the valuation of these 3 companies to see if they are good investments. By looking at the following Intrinsic Value charts from The Applied Finance Group (AFG) we can see that AFG’s model has done a good job tracking these firms by their high accuracy scores (accuracy score calculated by measuring how far AFG’s Intrinsic Value (Red Line) deviates from the company’s trading range(Blue Bar)). Also by looking at these charts you can see that CMG and NFLX while they have enjoyed great performance YTD we believe that both companies are beginning to look expensive according to our valuation model.
Netflix NFLX – Looks Expensive
Chipotle Mexican Grill CMG – Looks Expensive
Now that we have pointed out that we believe these firms are overvalued, we will provide our readers a list of 4 companies from the consumer services sector that look more attractive from a valuation standpoint and present attractive investment opportunities going forward
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Opentable beats and is up, significantly, pre-market. Tilson needs cash infusion.
Wait and Buy Apple after the crash of 2010 .
Pick it up for $ 37.50 / share
It is still a bad investment , ( a paper asset.. )
What about BIDU and PCLN - Same Story
Is ARM a better way to play AAPL:
And the crooks are busy snapping up Power-One (stock was up 22% last night after reporting stellar earnings that trounced the street and today they're stealing shares from retail suckers):
I've never seen a Chiplote Mex Grill.
Reminds one of KooKooRoo or Boston Market or Crox
I don't think you can short stocks like this, the house always wins as they say. Maybe if there is some kind of major correction in the overall market.. but I think it would have to be a really really big one to get these high flyers and whoever is pushing them higher to move away. They might have pull backs that are shortable, but the timing has to be just right or you just might get your face ripped off.. The analysis is right, though, by the way. I just saw Whitney Tilson on CNBC talking about another company, Opentable.. it is trading at something like a 200 p/e at this point.. lol.
Go ahead and short CMG. It's the only fast food restaurant that I see that has lines forming at lunch and dinner.
If the Titanic was reincarnated as a restaurant, it would be called Chipotle. Wall Street types are not going to be happy when that tortilla springs a leak and drips all over their $300 necktie.
A very good comment. History is on your side, too.
Food and food service companies cannot historically sustain Chipotle's rate of growth (and esp. its stock price appreciation).
You disagree? Consider the history of Boston Market shares. Of Sambo's. Of Snapple. Of Krispy Kreme. Of two-three dozen others over the past 40 years.
The only problem to solve is exactly when to take the short side of Chipotle.