Long-time Slopers are well-acquainted with my puzzlement over the success of Chipotle. Let me be clear at the outset: there are very few people on this planet who enjoy good Mexican food more than me. Here in the Silicon Valley, we are blessed with zillions of inexpensive and delicious Mexican fare served at family-owned eateries. Give me a five dollar bill, and I can provide you with a fantastic-tasting burrito.
But when I wrote my post last March, I was puzzling not only on the completely bizarre price action of the stock but also what the reasons for the company's success could be. I ate there a few times, and the two things I remember about the food were that (a) it was expensive; and (b) it wasn't especially good. I also was amused at the self-aggrandizing placards on the wall declaring that some (some!) of their ingredients were organic. Well, gee-whiz.
Well, as you probably know, Chipotle peaked very soon after my "Chipotle Defies Explanation" post, and it's lost about a third of its value. It's also down hard after hours. Below the chart shows the completely bizarre price behavior (red arrow) – – which to this day I still don't understand – – and the first giant gap down, oh-so-obviously tinted in purple. (The inevitable price gap tomorrow morning is not reflected here, since the market isn't open yet, and my time machine still isn't complete).
This is how mo-mo stocks get destroyed: by a series of gaps. Take Netflix, for instance, formerly the darling of the stock market. After it peaked around $300, things started sink, and then the big bomb blew up, blasting a gap in its price.
In a broader context, though, you can see that this was just the beginning of a much larger fall.
Going back even farther in time, Research in Motion (RIMM) used to be one of the "four horseman" of the NASDAQ (remember that?) Hard as it is to believe, RIMM used to be the AAPL of its day. But then the gaps started happening…….
And, as before, that was just the start of something much larger.
I think the fact that "there's no there there" with respect to Chipotle's product offering to consumers is going to beat down the stock price for years to come. This isn't a blip down due to someone getting a bad tub of salsa. People are finally realizing that it's cheaper and better to sit down with me at Los Gallos in Redwood City than it is to shell out big bucks for a sucko taco.