Updated from 6:21 p.m. to include comments from Chipotle

Activist investor Bill Ackman may have missed the mark on Herbalife(HLF) - Get Report  but in now targeting Chipotle(CMG) - Get Report he is dead-on accurate.

Ackman's Pershing Square disclosed a 9.9% stake in the embattled burrito joint after-hours on Tuesday, sending the shares 7% higher. In a filing, Pershing said it intended to engage in discussions with Chipotle's board and management. It added that it believes Chipotle shares are undervalued and attractive.

Ackman didn't return a request for comment on the specifics behind his Chipotle stake. A spokesman for Pershing Square declined to comment beyond Tuesday's filing. Said Chipotle spokesman Chris Arnold via email to TheStreet, "We welcome their [Pershing's] investment, and appreciate the confidence they've expressed in our brand, differentiated offering, visionary leadership and strong growth opportunities."

Nevertheless, we have come up with a series of reasons why Ackman may be viewing Chipotle as in bad need of a massive shakeup in order to stoke the chain's badly beat up share price. 

Chipotle is still struggling, mightily. 

Judging by Chipotle's second-quarter results, efforts to restore large amounts of goodwill among consumers via free food giveaways, intensified marketing and a new rewards program are not working to a sizable degree.

The company's second-quarter earnings nosedived 80% from the prior year to 87 cents a share. Wall Street estimated earnings of 93 cents a share. Revenue fell 16.6% to $998.4 million, missing Wall Street's $1.05 billion estimate. Same-store sales plunged 23.6% in the quarter, and are down about 21% so far in July.

"While the second-quarter sales declines weren't as bad as the first quarter, it's pretty clear that senior management has their hands full fixing the core business," points out Technomic Advisory Group Senior Principal David Henkes.

Ackman, known for his bold ideas laid out in epic slideshows, may have some better ideas than Chipotle's execs to reignite sales and profit. 

Chipotle is doing dumb things.

Even as its core brand remains in shambles, execs have hatched a plan to open the first Tasty Made burger restaurant this fall in Lancaster, Ohio. Chipotle said the Tasty Made menu will be limited to burger, fries and milkshakes.

Instead of trying to develop a new menu for a burger and fry joint that will find it incredibly hard to compete with a red-hot Shake Shack(SHAK) - Get Report , Chipotle should be testing more new Mexican themed items for its namesake chain to build some excitement. The recent debut of chorizo is unlikely to save the day.

Ackman is likely to let Chipotle execs know that launching a new burger chain right now is a pretty dumb idea. 

Company has done nothing with its existing emerging brands.

Chipotle has moved very methodically with launching promising new concepts that it hatched years ago. The company has only 15 Asian cuisine inspired Shophouse locations, and five Pizzeria Locale spots. These brands were launched several years ago -- both of them had promise back then and still have promise now, but not as much given more aggressive new entrants in the fast casual market such as Pieology, Blaze Pizza and Sweetgreen.

If Chipotle wants to find new sources of growth and try to lure back in shareholders that have vacated, it's sitting on two good concepts currently that deserve more capital investments and attention. Ackman is no fool to the potential of these concepts.

Pay for Chipotle's CEOs remains out of control. 

According to a regulatory filing in March, Chipotle's co-CEO and founder, Steve Ells, earned $13.8 million in total compensation in 2015, down from a jaw-dropping $28.9 million in 2014. Monty Moran, Chipotle's other CEO, saw his total compensation decline to $13.6 million in 2015 from a whopping $28.1 million the year before.

The figures continued a theme of egregious compensation packages for Chipotle's top two executives. What's more disturbing is that the pay last year came as Chipotle battled a plunging stock price and weak sales results in the wake of its high-profile food safety scandal

Ackman probably believes such pay is out of control in light of Chipotle's stock price performance, and wants to get to the bottom of why it's happening. Changes to compensation practices for the two CEOs may just help improve perception on Wall Street for Chipotle. 

Chipotle's board is horribly constructed. 

Both Ells and Moran are on Chipotle's board. Keep in mind these are the two men who essentially created Chipotle. How could they provide objective views on what they should earn and on business steps that should be taken? Ackman likely thinks one of them has to recuse themselves from the board, and hand over the reins to someone from the outside (such as himself).

Once settled into his attack on Chipotle, Ackman will likely find the problems on corporate governance go way beyond having two long-time CEOs on the board. Check out the resumes of Chipotle's existing board. 

John S. Charlesworth: Charlesworth retired from McDonald's(MCD) - Get Report in 2000 after 26 years, where he was mostly focused on international operations. Since then, he is the sole owner/member of a company that owns and operates car care facilities and commercial properties. Any rational investor likely sees Charlesworth and think two things: He is far removed from what's happening in the restaurant industry and must be cozy with Moran and Ells from when Chipotle was part of McDonald's.

Patrick Flynn: Similar to Charlesworth, Flynn retired from McDonald's in 2001 after spending 39 years with the Golden Arches. There, he was in charge of strategic planning and acquisitions. The same thoughts on Charlesworth apply to Flynn.

Darlene J. Friedman: Friedman retired in 1995 from a company called Syntex, where she focused on executive compensation. How that qualifies her to sit on the board of a growing restaurant company is unclear. 

Kimbal Musk: One should go easy on Musk as he is a restaurant entrepreneur and has a passion for food (yes, he is Elon Musk' brother). But Musk seems to be involved in a bunch of other ventures and boards other than Chipotle. It would be wise to trade in a "name brand" such as Musk for someone who could devote more time to Chipotle.