Chipotle (CMG) Stock Touches 52-Week Low: Time To Buy?

Shares of Chipotle Mexican Grill (NYSE:CMG) finished in the green after an impressive afternoon reversal on Tuesday. However, the stock briefly touched a new 52-week low during intraday trading, underscoring the challenges faced by investors as the market continues to grapple with the fast casual chain’s menu changes.

Chipotle shares have had a rocky start to the week, during what many assumed would be a celebratory period for the company and its loyal customers. Indeed, the company’s long-awaited queso cheese has not had a perfect debut, which has frightened investors who felt the rollout of queso was a make-or-break moment for the struggling stock.

Of course, a few harsh initial reviews does not necessarily spell disaster for the new offering. And regardless, plenty of investors will be interested in capitalizing from a rebound if Chipotle shares can bounce off their 52-week low.

But will the stock recover soon, or is CMG doomed to slump even lower? Let’s take a closer look at the company’s fundamental picture in order to find out.

The Fundamentals

Let’s start out by diving into Chipotle’s growth prospects, because they are slightly misleading. Obviously, year-over-year EPS growth of 881% is staggering, and it is part of the reason the stock has earned an “A” grade for Growth in our Style Scores system. Our current consensus estimate is also calling for sales growth of 16% this year, which is certainly not a bad figure either.

However, investors have to keep in mind that Chipotle’s year-over-year comparisons are inflated by the fact that the company was in the midst of its food safety scandal last year. As you’ll recall, the major foodborne illness breakouts were first reported in late-2015, and the fallout continued throughout 2016. Sure, these growth rates are notable, but Chipotle’s profits have still not returned to their pre-scandal levels.

As we can see, despite its “A” for Value, CMG is currently sporting an overall VGM grade of “C.” This is because several other key fundamental metrics are relatively lackluster. The company is somewhat bleeding cash as it looks to spend get customers back through new promotions, and our traditional value metrics seem to imply that the stock might still be pricey.

For example, CMG is trading at about 41x earnings, which really highlights how loose investors had been with this once-favored metric prior to the latest sell-off. Nevertheless, Chipotle’s P/S of 2.07 is more reasonable and could support the argument that the company’s business will be fine once it recovers from this downswing.

Of course, we should also mention that Chipotle is currently a Zacks Rank #3 (Hold). Remember, the Zacks Rank is heavily influenced by earnings estimate revisions, so let’s check out a quick snapshot of the revision activity we have seen for Chipotle recently:

Unfortunately, this snapshot does not reveal a very encouraging picture for Chipotle either. As we can see, analyst sentiment has really turned south for the stock, especially for the current quarter. In fact, our Zacks Consensus Estimate for Chipotle’s current quarter earnings is now 29 cents lower than it was just 60 days ago—and that is coming on the back of universal negative revisions.

Things look better for the next quarter, and even though the negative revisions have outnumbered the positive revisions, the Zacks Consensus Estimate has climbed by a penny. However, we’re still seeing strong agreement on the downside for the company’s full-year and next-year earnings estimates.

Nevertheless, investors should note that Chipotle’s earnings growth and recovery is expected to continue next year. This observation really underscores our findings here, as it will come down each individual investor’s preferences right now.

Will Chipotle return to its pre-scandal profit levels next year? It appears so. Does there appear to be some continued near-term challenges on the horizon? Yes.

If you are a believer in Chipotle’s long-term growth, buying at this new 52-week low is probably a good decision. But if you’d rather sit out what could be a long and strenuous rebound, perhaps CMG should still be avoided.

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