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Billionaire hedge fund manager Bill Ackman reduced his stake in Chipotle Mexican Grill Inc. (NYSE:CMG) immediately ahead of the restaurant chain’s recent stock sale and the departure of its CEO for strategic reasons.
Ackman’s move comes at a critical time, suggesting that his knowledge of Chipotle’s business dynamics gave him an advantage over the overall market.
What happened: The restaurant chain known for its burritos is experiencing its worst quarter in more than four years.
Since July 1, Chipotle’s stock price has fallen 17%, heading for its worst quarter since the first quarter of 2020, when it fell 22%.
Tendency:
Although Chipotle reported higher-than-expected sales and profits last quarter, the market reacted negatively to the results. The next day, the stock fell 1.9% as the company’s management stuck to its full-year guidance and signaled possible near-term pressure on margins.
On Aug. 13, the restaurant chain took a major hit, plunging 7.5% – its worst single-day drop in over a year – after announcing that Brian Niccol, the CEO credited with much of Chipotle’s recent success, would be leaving the company to take the helm at Starbucks Inc. (NASDAQ:SBUX). Chipotle’s Chief Operating Officer Scott Boatwright was named interim CEO.
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Ackman adjusts: According to recent 13F filings, Ackman’s Pershing Square Capital Management, LP sold 8.38 million Chipotle shares in the second quarter of 2024, representing a 23% reduction in its total position compared to the end of the first quarter.
Shares sold at an average price of $60.40, generating significant gains before the market downturn. Chipotle shares delivered a robust performance of 37% through the end of June, and through April, it had posted seven consecutive months of gains.
Ackman first invested in Chipotle in 2016, acquiring a $234.8 million stake, which represented 4.3% of his total portfolio at the time. Since then, he has steadily increased his position, culminating in a $2.1 billion stake at the end of the first quarter of 2024. Chipotle remained his largest holding until it was overtaken by Hilton Worldwide Holdings Inc. (NYSE:HLT).
Chipotle’s share of Pershing Square’s portfolio decreased from 20.1% to 17.33% between the first two quarters of 2024.
The timing of this adjustment proved ideal, as the restaurant chain’s shares have since seen a significant decline.
Still, the average purchase price of all Chipotle shares owned by Pershing Square is $8.72. Compared to the current market price of $52, the return on investment is nearly 500%.
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This article “Bill Ackman Reduces Chipotle Stake Just Before Shares Crash: Did the Billionaire See What the Market Didn’t?” originally appeared on Benzinga.com
