Traders betting against Chipotle are making millions as avocado prices surge

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With Chipotle‘s bottom line under pressure from surging avocado prices, there’s at least one group laughing all the way to the bank: short sellers.

They’ve made $467 milion betting against the Mexican fast-casual chain so far in the third quarter, according to data compiled by financial-analytics firm S3 Partners.

Bearish Chipotle speculators have loaded up on short positions since the start of July as avocado prices have taken off, soaring 75% over the period since then.

Avocados have an outsize effect on Chipotle’s profits because they make up such a big portion of the company’s food costs. Credit Suisse recently reported that avocados accounted for a whopping 10% of the company’s total food expenses, and estimated that every 10% increase in price for the savory fruit decreases Chipotle’s earnings by 30 cents a share.

Those surging prices have helped make bets against Chipotle both the largest short in the restaurant sector, as well as the most profitable, S3 data show. Yet while the firm attributes that largely to the rise in avocado prices, it’s not the only reason traders are bearish on the company.

Other reasons include “the short term earnings effect of promotional and marketing spending” and “margin degradation due to higher labor costs,” Ihor Dusaniwsky, managing director of predictive analytics at S3, wrote in a client note.

Chipotle short interest has climbed in the third quarter as the company’s stock has fallen and avocado prices have surged.S3 Partners