Chipotle (CMG) suffered even more on the heels of its fourth-quarter earnings report this week, with shares of Chipotle stock falling almost 7% in yesterday’s after-hours trading period. A year ago, shares were worth around $730, while yesterday’s drop shoved them back below $450.
It’s easy to understand why investors panicked at the results, especially considering the entire market is a bit shaky at the moment. Chipotle didn’t just post a sales miss, but also suffered its first revenue decline ever since its public debut in 2006.
Sales decreased almost 7% to $997.5 million, while investors are used to numbers like this (courtesy of Y Charts):
The growth clip for Chipotle was already cooling before the E. coli outbreak, but the company was at least still growing. The damage doesn’t end there, either. During Q4, same-store sales fell big-time with a nearly 15% slide.
And while earnings beat expectations, that’s the equivalent of hobbling over a knocked-down bar. The company’s diluted EPS was 45% lower year-over-year, while investors had snacked on double-digit growth for the six straight quarters.
Chipotle Stock Still Has Much to Overcome
The E. coli outbreak was declared officially over by the Centers for Disease Control on Monday, but the market’s reaction to these numbers suggest it’s hardly over for Chipotle stock. For starters, sales and earnings estimates for this year and next have been hammered by the outbreak.
As I noted recently, CMG looked like it was growing earnings at 31% just a couple months ago. However, a 16% drop is on tap next year. Take a look at how dramatically analysts have been slicing their bets, according to Yahoo Finance:
I think the worst is over for Chipotle from a publicity and sales perspective. But that doesn’t necessarily mean the damage is done for CMG stock in the near future. A consumer-facing growth pick like Chipotle stock is quick vulnerable to swings in sentiment, especially since the stock was priced for perfection before this debacle. While I think earnings will get back on track, it may take some time for this to truly be history.
The good news is that the same qualities that are causing such panic could manifest themselves in a Chipotle comeback, too. CMG stock has been called down and out before, only to enjoy a sentiment swing to the upside. This stumble is just looking like it will take a little more time to shake off.
Right now, shares are trading for just 27 times forward earnings. That’s factoring in these ugly estimate cuts and it still represents the lowest level since 2011 and about half of the stock’s five-year average. That said, investors willing to take a gamble could find a bargain hidden in this Chipotle mess.
But as of right now, the market doesn’t seem ready to forget.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
