Einhorn's Call on Chipotle Among Week's Highlights

NEW YORK (TheStreet) -- The end of another week, one that has yet again been chock full of interesting developments. It never gets old -- easy to say when the markets aren't coming apart at the seams.

No sooner did I tout the remarkable run of the restaurant sector over the past several years, than a couple of curious things happened in the sector.

First, on Tuesday at the Value Investing Congress in New York, hedge fund manager David Einhorn presented his latest short case, this one for Chipotle ( CMG). While I was not in the room this year to see Einhorn's presentation, I was for the past two years, in which Einhorn lambasted Florida land giant St. Joes ( JOE) in 2010, and Green Mountain Coffee Roasters ( GMCR) last year.

Einhorn's short presentations have become legendary, and the market reactions are typically quick and swift. St. Joe's fell 10% on the day of Einhorn's Oct. 13, 2010 presentation and 20% within two days. Green Mountain fell 15% on Oct. 18, 2011, the day Einhorn made his case, and is down more than 70% about one year later.

JOE Chart JOE data by YCharts

GMCR Chart GMCR data by YCharts

In Chipotle's case, shares were down 4% on Tuesday, following Einhorn's presentation, a fairly tepid reaction, so far, anyway. But Chipotle, which had been the one of the big growth stories of the past few years, had already lost about a third of its value between May and September.

After an incredible run up from about $50 in early 2009, shares topped out in the $440 range in May. As much of a fan of the restaurant sector that I've been, Chipotle was one name that seemed to be way too expensive.

I was way early in that presumption though; believing that Chipotle was overpriced at $230 in late 2010. The small short position I initiated at that time, and ultimately closed, was way too early. Now that David Einhorn has weighed in, it will interesting to see where Chipotle goes from here.

CMG Chart CMG data by YCharts

In other restaurant news, the Dave and Busters IPO, which was scheduled to begin trading Friday, was scrapped Thursday, due to "market conditions."

There had been several restaurant IPOs in the past year, including Del Frisco's ( DFRG), Chuy's ( CHUY), Bloomin' Brands ( BLMN) and Ignite ( IRG), so it's curious that this offering was yanked. Evidently, it was not going to price well, probably due to a declining appetite for new issues.

In the small cap world, the Wet Seal ( WTSLA) activist situation, has come to a head. The struggling women's clothing retailer, which is cash rich, but results-poor, has been pressed by activist shareholder Clinton Group, which owns about 7% of the company, to make changes.

Clinton Group sought to remove four Wet Seal directors, and replace them with their own nominees, a fight that Clinton Group has now won. Earlier in the week, Wet Seal was still trying to fight off Clinton's efforts, despite the fact that it appeared as though Clinton had received shareholder's consent. That fight is now over.

There's much work to be done at Wet Seal, which operates 468 Wet Seal stores and 82 Arden B Stores; the company has been facing double-digit same-store sales declines including -12.7% for September, in an industry that is highly competitive. Still, Wet Seal ended its latest quarter with $146.5 million, or $1.65 per share in cash, and no debt, so there are resources to move forward.

WTSLA Chart WTSLA data by YCharts

Never a dull moment . . . .

Have a great weekend.

At the time of publication, the author was long WTSLA.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Jonathan Heller, CFA, is president of KEJ Financial Advisors, his fee-only financial planning company. Jon spent 17 years at Bloomberg Financial Markets in various roles, from 1989 until 2005. He ran Bloomberg's Equity Fundamental Research Department from 1994 until 1998, when he assumed responsibility for Bloomberg's Equity Data Research Department. In 2001, he joined Bloomberg's Publishing group as senior markets editor and writer for Bloomberg Personal Finance Magazine, and an associate editor and contributor for Bloomberg Markets Magazine. In 2005, he joined SEI Investments as director of investment communications within SEI's Investment Management Unit.

Jon is also the founder of the Cheap Stocks Web site, a site dedicated to deep-value investing. He has an undergraduate degree from Grove City College and an MBA from Rider University, where he has also served on the adjunct faculty; he is also a CFA charter holder.

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