Reading:Does billionaire Ken Griffin know something that Wall Street doesn't? The Citadel chief sold 91% of his stake in Palantir and is instead piling into this stock split.
Does billionaire Ken Griffin know something that Wall Street doesn't? The Citadel chief sold 91% of his stake in Palantir and is instead piling into this stock split.
Billionaire Ken Griffin left an indelible mark on Wall Street and has been cited as one of the most successful investors of all time. He predicted the 1987 stock market crash, known as “Black Monday,” by shorting stocks before the drop and making a fortune. His hedge fund, Citadel Advisors, generated gains of 15% last year, turning a $7 billion profit and outperforming many of its peers. This follows its blockbuster performance in 2022, when Citadel was named “the best-performing hedge fund of all time,” according to CNN, with a profit of $16 billion, the “largest annual windfall on record.” , according to the report.
Griffin is also a big believer in the potential of generative artificial intelligence (AI). “This branch of AI will be a game-changer for the economy because it will take a huge amount of work done today by people and will do it in a significantly different, highly automated and very efficient way,” Griffin said .
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In this context, it is worth noting that Griffin sold 91% of Citadel's stake in the AI specialist. Palantir Technologies(NASDAQ:PLTR) and instead piles into a high-profile stock split.
Image source: Getty Images.
Palantir has more than two decades of experience in AI, and moved quickly when generative AI went viral early last year. The company developed its Artificial Intelligence Platform (AIP), a cutting-edge AI tool that helps businesses solve real-world problems using business-specific data. However, Palantir's biggest coup was developing hands-on sessions called boot camps, which pair customers with Palantir engineers to create these AI-powered solutions.
This strategy was hugely successful. Palantir's U.S. commercial revenue, which includes AIP, jumped 54% year-over-year and 13% sequentially in the third quarter, while the segment's customer base soared 77%. Additionally, the segment's remaining deal value jumped 73%, suggesting its growth streak will continue.
The results help illustrate why Palantir stock is up 295% over the past year and more than 1,000% since the start of 2023 (as of this writing). It also didn't hurt that Palantir was admitted to S&P500 on September 23.
In light of the company's ongoing winning streak and impressive gains in its stock price, it may seem surprising that Griffin went on a selling spree, dumping more than 5 million shares of Palantir and reducing its position by approximately 91%. However, the surge in share price led to a commensurate increase in valuation, and Palantir closed the third quarter selling for 98 times its forecast earnings. With a valuation of this magnitude, it's no surprise that Griffin went bargain hunting.
What's intriguing is that the Citadel has piled up Chipotle Mexican Grill(NYSE:CMG) action.
There's no doubt that Griffin thought Chipotle presented a compelling opportunity in the third quarter. The billionaire investor increased Citadel's stake by more than 7 million shares and increased his position by 454%. This brought its total stake to 8.64 million shares worth $552 million. Despite owning thousands of shares, Chipotle is Griffin's 12th largest individual stock holding.
Chipotle has long been a pioneer in the fast-casual industry, bringing “food with integrity” to the masses. The company has employed a number of effective strategies to fuel demand, including an industry-leading customer loyalty program, a robust digital strategy and the development of drive-thru “Chipotlanes” for mobile orders, with separate preparation lines to speed up throughput.
It hasn't all been smooth sailing, as the company faced some troubling developments in the third quarter. In early July, Chipotle announced the retirement of CFO Jack Hartung in 2025. A few weeks later, the company received a second piece of bad news. Famed CEO Brian Niccol, credited with the successful relaunch of the brand, was poached by Starbucks. The double dose of uncertainty sent fair-weather investors seeking greener pastures, sending stocks plunging.
This news, however, had no impact on Chipotle's financial results. For the third quarter, revenue of $2.8 billion increased 13%, while its diluted earnings per share (EPS) of $0.28 increased 22%. It's usually a good sign when profits are growing faster than sales, because it suggests a level of spending discipline. Additionally, Chipotle's same-store sales increased 6%, fueled by both increased transactions and a higher average check.
The company's strong and consistent results are why Chipotle stock is up 46% over the past year and 103% over the past three years, despite economic headwinds. It also led to a 50-for-1 stock split earlier this year, which was completed on June 26, introducing a whole new generation of investors to the stock.
We don't know for sure When During the third quarter, Griffin increased its stake in Chipotle, but we can make an educated guess by looking at the stock chart. When excitement surrounding the stock split reached fever pitch, Chipotle hit a new all-time high, but the loss of two top executives brought it back down to earth. During a five-week period between June and July, the stock lost approximately 27% of its value. Griffin likely saw a deal that was just too good to resist and piled into Chipotle stock to take advantage of the fire sale.
With hindsight, it seems clear that Griffin doesn't know something that Wall Street doesn't know. He was simply reacting to what he saw as an obvious opportunity. Should investors follow suit?
Chipotle shares have rarely been cheap and are currently selling for 58 times forward earnings, which could be off-putting for some investors. However, at the time of Chipotle's recent crisis, the stock was trading at 45 times forward earnings, just below its five-year average multiple of 46, which likely piqued Griffin's interest.
Looking to 2025, Wall Street expects Chipotle to generate EPS of $1.32, which equates to 48 times forward sales, which isn't much more than what Griffin paid. To be clear, this is a premium to a multiple of 31 for the S&P 500. That said, Chipotle stock is up more than 300% over the past five years (at the time of writing these lines), or more than 3 times the gains of 96% of the S&P 500 index. the broader market.
This helps illustrate why Chipotle stock deserves a premium and why it remains a buy.
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Danny Vena holds positions at Chipotle Mexican Grill, Palantir Technologies and Starbucks. The Motley Fool ranks and recommends Chipotle Mexican Grill, Palantir Technologies and Starbucks. The Motley Fool recommends the following options: Short December 2024, $54 at Chipotle Mexican Grill. The Mad Motley has a disclosure policy.
