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When it rains, it pours for Chipotle

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The media is driven by narratives, and not necessarily providing a full picture.  The current narrative for Chipotle is that their restaurants are susceptible to disease outbreaks.  When a story that meets their narrative comes along the desk, they report.  Investors are susceptible to the latest news, and they sell the stock (CMG).  Their stock is near a 5 year low.

I have known people who like their food, and bought or wanted to buy their stock because they like their food.  This is not a reason to invest in a company.  For example, in the last year, they earned $3.23 per share in 2016.  If you had bought the stock at $400/share, you earned .8% on your money in earnings, and lost $60 in company value.  Will anyone buy your stock for $340 to earn $3.23/year?  No.  But this isn’t the whole story, of course, since they have had a huge hit on their earnings in 2016.

So, instead, let’s look at what’s happening now.  After a 24% decline in sales last year, they have had a 28% increase in 2017.  Amnesia always sets in for consumers who don’t remember last week’s, last month’s, or last year’s news.  So they go back to the restaurants.

The estimate for 2017 is $10.20 in earnings per share.  At a current price of $340/share, this is a 3% yield in your ownership.  This is a 33 P/E.  Other fast food restaurants are currently valued around 27 P/E, but the historical average for restaurants is around 15-18 P/E.

My final thought about this stock is that with a 20% growth rate, it may be finally time to start initiating a position in this stock, even though it may have another 20% drop.  Conservative or value investors need not apply…

Multiple customers who ate at a Sterling, Virginia Chipotle complained of nausea, vomiting and diarrhea.

Source: Chipotle says sick employee responsible for latest outbreak