Due to industry regulations, large investment firms are required to disclose their portfolio holdings every quarter. This is a goldmine for small investors, as they can search through a large list of positions to find potential buying opportunities.
Bill AckmanThe billionaire hedge fund manager who runs Pershing Square Capital Management is a popular investor to follow. His firm held a 13% stake in the successful company as of September 30 last year, a position Ackman has held since 2016.
This peak restaurant supplies it has jumped 91% in the last two years alone. Is it time to buy stocks?
Ackman’s investment philosophy rests on owning competitively advantaged companies that possess numerous positive attributes that benefit long-term investors. It also focuses on consumer-facing businesses.
Come in Chipotle Mexican Grill (NYSE: CMG)Tex-Mex pioneer known for quick service, simple menu and consistent food. Pershing Square first bought the stake in 2016, a counterintuitive move as Chipotle was still dealing with the fallout from a terrifying E. coli outbreak at some of its restaurants.
However, that bet paid off. One reason is growth. Chipotle’s revenue of $2.8 billion in the third quarter of 2024 was 100% higher than the same period five years earlier. This is a clear sign of its popularity among consumers.
Moreover, having a significant revenue base gives Chipotle some cost advantages. This is especially true when procuring key food inputs, spending on marketing and technology investments that can be used to expand the sales footprint, and when trying to acquire attractive real estate.
With consistently robust same store sales increases that defy industry norms, it’s no surprise that this top gain was also fueled by new store openings. Chipotle is expected to open 300 net new locations last year, bringing the total to more than 3,700. The business is on track to one day reach 7,000 stores in North America, a long-term stated goal of management.
It’s safe to assume that, based on the trajectory Chipotle has been on, achieving that goal is a realistic outcome. This could lead to revenue growth over many years.
The problem for new investors is that Chipotle’s monster success is no secret. The stock continues to climb higher, leading to a steep valuation. The stock is currently trading at a price-to-earnings (P/E) ratio. of 54, more than twice as many as S&P 500.
Some investors might be perfectly fine paying that rich valuation for what they see as a high-quality business. As mentioned before, Chipotle’s growth has been excellent. And it’s definitely easy to believe that this will continue for years to come. This business is also extremely profitable, with an operating margin of 16.9% in the third quarter. This figure is higher compared to 8.2% in the third quarter of 2019.
