The coronavirus pandemic is splitting the restaurant industry in two. Big, well capitalized chains like

Chipotle Mexican Grill Inc.

and

Domino’s Pizza Inc.

are gaining customers and adding stores while tens of thousands of local eateries go bust.

Larger operators generally have the advantages of more capital, more leverage on lease terms, more physical space, more geographic flexibility and prior expertise with drive-throughs, carryout and delivery. A similarly uneven recovery is unfolding across the business world as big firms have tended to fare far better during the pandemic than small rivals, thinning the ranks of entrepreneurs who could eventually become major U.S. employers. In the retail world, bigger chains like

Walmart Inc.

and

Target Corp.

are posting strong sales while many small shops struggle to stay open.

The divide between large and small restaurants surfaced in the summer. Chipotle more than tripled its online business sales in the second quarter while Domino’s,

Papa John’s International Inc.

and

Wingstop Inc.

all reported double-digit same-store sales increases in the third quarter compared with the year-earlier period. McDonald’s also said U.S. same-store sales rose 4.6% in the third quarter. That included a rise in the low double digits during September, its best monthly performance in nearly a decade. It credited faster drive-throughs and promotions.

Off Menu

People are spending less than during the last recession at restaurants, particularly smaller independent ones, straining the finances of many businesses.

U.S. restaurant consumer spending, change from previous year

U.S. food service sales,

change from previous year

Small U.S. businesses’ default rate on loans and leases

Accommodations

and food services

Small U.S. businesses’ default rate on loans and leases

U.S. restaurant consumer spending, change from previous year

U.S. food service sales, change from previous year

Accommodations

and food services

U.S. restaurant consumer spending, change from previous year

Chipotle has had an amazing year, climbing 54% year to date. That move comes after a 49% rise in 2018, and a 93% gain in 2019. What’s next for the stock? Let’s go to the chart to find out. 

Just a few years ago, Chipotle’s stock suffered as patrons succumbed to a series of outbreaks of food-borne illness. This led to a three year losing streak for the stock, from 2015 through 2017. 

cmg

Fast forward to 2020 and Chipotle is one of the hottest restaurant stocks around. The stock closed at an all time high of $1379 per share on September 2nd. Since then, Chipotle has pulled back to its 50 day moving average, shown in blue. That moving average comes in at about $1238. 

Our trading plan for Chipotle will key in on this indicator. We want to buy the stock as close to the 50 day moving average as possible. 

Also, Chipotle is on the cusp of a buy signal from its MACD indicator. I’ll stick with the trade as long as Chipotle remains above $1180 per share, represented by the black dotted line. 

The pullback in Chipotle gives us an opportunity to buy a hot stock at a discount. By using the September low as a strategic inflection point, we can do so with minimal risk. 

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Ed Ponsi is the managing director of Barchetta Capital Management, and is the author of three books for publisher Wiley Finance. A dynamic public speaker, Ed has made appearances around the world, in such diverse locations as Singapore, Dubai, London, and New York. For more information about Ed and