Honestly, I’m more of a Qdoba man when it comes to beans, beef, and queso. But when it comes to buying stock, I’m a Chipotle investor all the way. This is a recent development, because of the two embarrassing E. Coli outbreaks that sent Chipotle Mexican Grill Inc (NYSE:CMG) tumbling. Today it’s not a cheap stock at just over $400. But trading at just almost 50% of its pre-health scare heydey, this might be a great time to pick up some Chipotle stock for the long term.
A Deeper Look at Chipotle
Chipotle was at the right place at the right time when American Fast Casual dining started to take off in the post-recession world. People wanted something cheap, but not so cheap that it left them with feelings of existential ennui. Chipotle found the perfect balance, slinging made-to-order burritos and nachos with incredible speed and deliciousness.
And then disaster struck. Twice.
E. Coli from a produce supply line caused hundreds to lose their lunch. Chipotle apologized. We accepted their apology. Then it happened again!
You can dig into Chipotle’s fundamentals to find other reasons for the stock price decline, but those two events really are the most significant reason that Chipotle is priced the way it is.
Before “The Plague of 2015”, Chipotle locations had tremendous margins: 26%-27% in some cases. What’s more, Chipotle corporate chose these locations very carefully. Even at their lowest ebb, you could easily drive to a local Chipotle and see lines out the door.
More recently, there have been important signs that Chipotle has finally recovered from their E. Colo mishaps. It has been almost two years, and we feel that we can trust Chipotle with our delicate gut flora once more. The following numbers may prove that this is happening.
Comps (sales at Chipotle restaurants open for at least one year):
- October 2016: -20%
- November 2016: -1.8%
- December 2016: +14%
- January 2017: +25%
This is great news for Chipotle. But if you look at the stock, investors haven’t quite gotten the memo yet.
Should You Buy CMG?
Go for it. Chipotle has greatly improved their supply chains, regained their customers’ trust through consistent performance, and loyalty marketing (read: free burrito coupons mailed right to my house!). I’m not saying Chipotle stock is going to soar anytime soon, but if you are willing to buy and hold, I have a feeling that everyone’s favorite fast casual burrito place is going to rise again.
