Did the billionaire see what the market could not?

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Billionaire hedge fund manager Bill Ackman has strategically reduced his stake in Chipotle Mexican Grill Inc. (NYSE:CMG) just before the restaurant chain’s recent stock selloff and CEO departure.

Ackman’s move comes at a critical time, suggesting his knowledge of Chipotle’s business dynamics has given him an edge over the broader market.

What happened: The restaurant chain, known for its burritos, is witnessing its worst quarter in more than four years.

Since July 1, Chipotle’s stock price has fallen 17%, setting it on its way to its worst quarter since the first quarter of 2020, when it fell 22%.

Trends:

Despite Chipotle reporting stronger-than-expected revenue and earnings last quarter, the market’s reaction to the results was negative, with shares down 1.9% the next day as the company’s management chose to keep its full-year guidance unchanged and signaled short-term potential. pressure on margins.

On August 13, the restaurant chain took a significant hit, falling 7.5% – its biggest one-day drop in over a year – after the announcement that Brian Niccol, the CEO credited with much of its recent success of Chipotle, will let take the helm at Starbucks Inc. (NASDAQ:SBUX). Chipotle’s chief operating officer, Scott Boatwright, has been named interim CEO.

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Ackman adjusts: According to the most recent 13F filings, Ackman’s Pershing Square Capital Management, LP sold 8.38 million shares of Chipotle in the second quarter of 2024. This represents a 23% reduction in its overall position compared to the end of the first quarter .

Shares were sold at an average price of $60.40, making substantial gains before the market’s decline. Chipotle shares have posted a robust year-to-date performance of 37% through the end of June. It marked seven consecutive months of gains through April.

The story continues

Ackman first invested in Chipotle in 2016. He purchased a $234.8 million stake that represented 4.3% of his total portfolio at the time. Since then, it has steadily increased its position. This culminated in a stake of $2.1 billion at the end of the first quarter of 2024. Chipotle remained the largest holding until it was overtaken by Hilton Worldwide Holdings Inc. (NYSE: HLT).

Chipotle’s share of Pershing Square’s portfolio fell from 20.1% to 17.33% between the first two quarters of 2024.

The timing of this adjustment turned out to be impeccable, as the restaurant chain’s stock has since experienced a notable decline.

However, the average purchase price of all Chipotle shares held by Pershing Square is $8.72. Compared to the current market price of $52, the return on investment was almost 500%.

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