Perhaps the biggest loser Wednesday was HHGregg ( HGG). The appliance and electronics retailer cut its full-year forecast and posted first-quarter guidance well below Wall Street expectations. The stock plummeted 36% on heavy volume. So enough horror stories for one article. How about a buoyant stock like Chipotle Mexican Grill ( CMG)? CMG has been a highflyer among restaurant and fast-food stocks for some time. The five-year chart below shows its price trajectory compared to its price-to-sales ratio. CMG Price / Sales Ratio data by YCharts
For those of you who own CMG, which is well off its 52-week high of $442, I'm yelling "watch out below," because it still looks ridiculously overpriced. Why would anyone want to own a stock that is selling at a price-earnings-to-growth ratio of almost 2, based on five-year expectations, and is also selling for five times its sales? Granted they make wonderful Mexican fare, but CMG is trading at a trailing price-to-earnings ratio of 52, and a jaw-dropping forward P/E of over 34.
Yes I've heard the theory that same-store-sales growth is what justifies the CMG share price and nosebleed high P/E ratios. I'm not buying that reasoning. Like other overpriced, unreasonably highfliers -- remember First Solar ( FSLR), which in the past 52-weeks traded at $127? -- it wouldn't surprise me if one of these days CMG comes down to earth and sells closer to $200 a share. What might trigger such a fall? How about a negative surprise like lowering its earnings guidance or missing its next quarterly earnings projections? I'm not saying it will happen, but caveat emptor! At the time of the publication, the author was long GG. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.