Why I am short Netflix and Chipotle Mexican Grill – C. Luckner (NFLX, CMG, AMZN)

Carrie LucknerAuthor: Carrie Luckner

Covestor model: Long-Short Hedged

Disclosure: Short NFLX and CMG

After aggressively watching for most of the day yesterday (6/6), I covered what was left of my short S&P (NYSE: SPY) position and sold some ProShares UltraShort S&P 500 (NYSE: SDS), closing out small gains but big victories in this market. Neither position was really big enough as a percentage of the portfolio, or volatile enough to hedge the movements in my US Steel Corp (NYSE: X) and (NYSE: WFC) positions. In search of some potentially juicier returns on the short side, I turned my attention to a few of the higher multiple stocks that have been the darlings of this rally, and which I think have greatest to lose should the market succumb to even more selling.

I chose both Netflix (NASDAQ: NFLX) and Chipotle Mexican Grill (NYSE: CMG) to short as a replacement of my less volatile and expensive SPY short. First off, I like the high dollar prices and liquidity in these two names. NFLX and CMG have been on my radar since the beginning of the year. With trailing twelve month P/E’s of 75 and 48 respectively (as of 6/7), both with stock prices of $260+, no dividends, and a lot of positive news already out there like NFLX’s global expansion story, and Chipotle’s expansion to an Asian-themed restaurant based on their current model, I think they are both due for a pullback should we get more depressing economic data and begin to see a risk-off trade scenario in the markets.

Netflix’s business model is being threatened by increasing competition through Amazon (NASDAQ: AMZN) and Hulu. Full disclosure – I am a subscriber, and they really don’t have the latest and best movies; the documentaries are decent and worth the subscription price. I’ve found a better selection on Amazon, on a pay as you go basis, rather than a monthly subscription fee (who wants an annoying subscription fee every month when there are more important bills to pay?). And while I do enjoy eating fresher and more nutritious food at Chipotle, you can’t leave there without spending at least $10, and in this environment of increased fuel and commodity costs, making even the tiniest splurge is worth a second look for most.

Even if we don’t get more depressing data, even if Bernanke makes positive/constructive comments at the IMF meeting , and even if they do eventually go ahead with a QE3, I don’t see how these companies can continue to trade at these valuations.



Stock prices, multiples from Yahoo Finance

  • joe

    Where you are wrong is calling Chipotle food nutritious. It is far from healthy and nutritious; I know health food; Chipotle is NOT. White Flour tortillas are not healthy; White rice is not healthy (whole grain rice is); Carnitas is NOT healthy; fatty, greasy barbacoa is NOT healthy; and their steak is low quality and chewy. Chipotle food is simply a fad and will fade very quickly.