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Takeaway: Tempted to nibble on shares of beaten down Chipotle? You may want to reconsider says Howard Penney.

Over the weekend, Barron's Senior Editor Vito Racanelli dug deep into Hedgeye Restaurants analyst Howard Penney's call to short Chipotle (CMG). Shares are down 45% from its all-time high.

IN THE NEWS: Barron's On Hedgeye Restaurants Analyst Howard Penney's Short Chipotle Call | $CMG - chipotle barron s

As Racanelli writes:

"... The Denver-based chain faces a long road to regain investor trust. That’s the view of Howard Penney, an industry analyst with decades of experience at Hedgeye Risk Management, an independent research firm. He has been spot on since he turned skeptical on Oct. 19, 2015.

 

Is Chipotle now a cheap stock, given its heretofore 20% revenue and 30% EPS growth over the past seven years? Penney remains bearish."

In the story, Penney walks through his five stage life-cycle restaurant guide for investors tempted by Chipotle’s 45% decline.

"... Eventually, management psychology will signal a bottom in the stock price, he says. In stage No. 5, management decides to close stores, slow growth, and stop discounting to improve profitability. That’s the time to buy, says Penney, who has a $275 price target on Chipotle, down another 33%. He bases that on a still rich P/E of 27 times his estimate of $10 a share this year."

IN THE NEWS: Barron's On Hedgeye Restaurants Analyst Howard Penney's Short Chipotle Call | $CMG - chipotle cartoon

Bottom line according to Penney: We're a long ways off from Stage 5. Don't buy the dip.