NEW YORK (TheStreet) -- A friend of mine once told me, "Never underestimate the power of great burrito." He said this jokingly because I loathed the idea of overspending for a meal I believed was worth half the price.
There's a correlation here with Chipotle Mexican Grill (CMG), whose stock I've always thought was expensive.
I won't disagree that Chipotle makes a "powerful" burrito. But I continue to worry investors are too willing to give Chipotle the benefit of the doubt as the company's operational performance has not been up to par when compared to Yum! Brands (YUM) and McDonald's (MCD).
Remarkably, as Chipotle's margins are compressing and same-store sales are weakening, the stock is up an impressive 30% year-to-date. With second-quarter earnings due out Thursday, I can't stomach holding this stock, especially since the April quarter raised several red flags.For instance, even though first-quarter revenue were up 13% year over year, it was also clear the rising costs of protein had taken a toll on the company's margins. That food costs were 33% of Chipotle's revenue is cause for indigestion. The way I see it, as long as food costs remain at such a high percentage of revenue, this will continue to add pressure on management to raise prices - there's no way around it. And investors will demand it.
Select the service that is right for you!COMPARE ALL SERVICES
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV