The recently unstoppable bull market has finally hit a speed bump, with stocks down broadly so far this Wednesday. The losses were broad-based but particularly focused on a slew of stocks with disappointing earnings reports. The market anxiously awaits a GDP update from the US government later this week.
With such broad losses, our Top Performers clustered around short plays for the day. Our system identified numerous shorts that easily outpaced broader index losses on the session.
Among the loss-leaders over the last week was fast-casual burrito chain Chipotle, falling despite its attempt to put a positive spin on its earnings.
After fast growth in the last several years, Chipotle’s stock was relatively highly valued in recent memory. Disappointing earnings news, however, has led CMG to sharp losses since yesterday. The stock has been declining over the past year.
Recently, the stock has come under attack from several high-profile analysts. Though many analysts remain long on the stock long term, they have substantially lowered their price targets in the last week. News Quantified users received alerts about each of these downgrades.
- Downgraded by Maxim, price target from $435 to $420.
- Downgraded by Price target at $338.
- Downgraded by Royal Bank of Canada, target at $330 (down from $440).
- Also Downgraded by UBS, Sun Trust Banks, and Barclays.
NewsQuantified users who shorted Chipotle on any of these downgrades have already netted short profits around 14%.
Analysts were concerned with Tuesday evening’s earnings report, fearful of higher labor costs and factor input prices. Their fears became manifest when the report came out, with growth coming in well below expectations, despite Chipotle adding menu items like Queso. The queso has been widely mocked on social media and elsewhere.
While Chipotle continues to post revenue growth, it is coming in below expectations, enough to drive the priced-for-growth stock down.
Here’s the thing: NewsQuantified users didn’t even have to short on the original downgrade news to score some tidy profits. Our users who waited for the release of the actual earnings report Tuesday evening still earned profits near 13%.
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