Continuation from yesterday…..
CONCLUSION:
Chipotle Mexican Grill (CMG) presents us with a perfect case study of what to look for in potential Tenbaggers, when to take position and when to exist.
One of the things we have learned right away is that it wouldn’t be a wise decision to take a position in Chipotle’s stock right after its IPO in January of 2006. That was due to our inability to determine the stock’s structural trading patterns, price doubling at the open and subsequent excessive valuation levels.
Yet, the stock presented us with another buying opportunity at the end of 2008, when the company’s stock price declined 75%. At that time, Chipotle offered us a perfect Tenbagger investment opportunity for the following reasons.
- Fundamental: Even though Chipotle’s stock collapsed 75% in the midst of the 2007-2009 financial crises, the company itself was doing incredibly well. Opening over 100 new stores, improving margins and growing at 25-30% per year. What’s more, for the first time since going public, Chipotle’s valuation metrics were not too expensive.
- Technical: After establishing a clearly defined down trending channel between its 2007 top and its 2008 bottom, Chipotle’s stock broke out of this channel in the late November of 2008 at $42.20, giving us a clear signal to take a long position.
- Timing: An analyst aware of the overall structure of the market would know that a bear market mid cycle leg would terminate in the early 2009. This information alone would ensure that an analyst who was following Chipotle’s stock would be watching closely for an anticipated technical bottom.
It is not often that we get all three disciplines confirming each other. Yet, when we do, it becomes increasingly easier to take a position as the risk/reward profile clearly benefits an investment. Just as was the case with Chipotle’s stock in November of 2008.
Finally, not only did Chipotle’s stock present us a perfect case study of when to go long in a potential Tenbagger, it also teaches us when to get out. As is the case today. Making Chipotle’s stock a perfect financial instrument to follow over the next few years. With an ability to profit on the short side before reversing course at the next bear market bottom to benefit from the next leg up. Perhaps just in time for the next Tenbagger run.
Final Prescription: Fundamental Analysis + Technical Analysis + Timing Analysis = A Massive ROI.
