Chipotle and Google: Not Done Yet

 | Oct 18, 2013 | 3:35 PM EDT
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How do big-cap, high-growth stocks go up 12% in a day? How does Internet king Google (GOOG) rally 122 points in a single session? How does Chipotle (CMG), a company that, in the end, makes a really good burrito, go up 67 points over a couple of hours' time?

Because they can go down the same amount on a given day, that's how, and in both cases they have. Welcome to the world of the highest-risk, highest-reward stocks where people either love them or hate them. Remember a year ago when Google fell to $685 from $765 in a day? How about when Chipotle fell to $319 from $408 in one day's trading back in July 2012?

In each of those declines the companies reported earnings disappointments of important magnitude and, more important, gave you little hope that things were going to get better any time soon.

We look back now at Google and we realize that the company was just coming to grips with the radical move from desktop to mobile, one that has taken the company's YouTube division to 40% from 6% of views. Growth investors pretty much decided that day that Google's halcyon days were past and ever since then its price-to-earnings multiple -- what we will pay for the company's earnings stream -- has been shrinking.

Today we found out that not only did Google have a workable plan, it now has the holy grail we look for with all super-growth stocks: It's got accelerated revenue growth, or ARG.

There were so many things going wrong at Google this time last year, including a bizarre intraday release of earnings by mistake, that it actually morphed from a growth stock to a value stock before our eyes. Many (not me, fortunately, because I have been steadfast on this one) actually thought the company had become some bizarre amalgam of search revenue and dream-catchers, with initiatives all over the place but no real focus.

This quarter, Google had a laser-like focus on profitability when it comes to everything from YouTube to search, from Android to the highly underrated Chrome personal computer. The rally today says the same thing as the sell-off said at this time last year: The stock's got much, much further to run. Yes, I am saying you can buy it up 123 points but only if you can get your head around Karen Cramer's "Divide by 10" rule. If you can imagine that Google's a $90 stock that went up 12 points and not a $900 stock that went up 123 points, then you know why I think it's not a total absurdity to buy it up here.

Chipotle's pretty much the same. When it plummeted a hundred points in July, it told you a story about how same-store sales were decelerating at a pace that most didn't think possible. I committed the ultimate indignity and asked if Yum! Brands' (YUM) Taco Bell was taking share.

Today, we got our first re-accelerating comp number with a promise of more to come. Plus, we had a tease about how well the number two concept, ShopHouse, the delicious Asian Thai restaurant, is starting to take shape as the next big thing. What does that mean to the market? Ah, yes, once again, accelerated revenue growth. And even though this stock is much more expensive than Google on a price-to-earnings basis, it could be a buy if it pulls back when Panera (PNRA) reports what could be a considered a disappointing number next week. I stuck with Chipotle -- I took a lot of burritos in the face doing so -- but now you see what happens when you back the best of breed. They bounce back and bounce back harder than they fell.

Chipotle and Google: two accelerating revenue-growth stories, two stocks that aren't yet done going higher.

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