With earnings season in full swing, CEOs and investors alike are bracing for backlash from Wall Street. There’s been a lot of carnage so far already as even big names like Microsoft Corporation (MSFT) have whiffed on estimates and dragged down share prices.
But with investors’ emotions in overdrive following a particularly messy quarter, we shouldn’t be surprised to see a lot of these names snap back into shape relatively quickly.
Chipotle Stock’s Problems
Chipotle Mexican Grill, Inc. (CMG) is one of those companies, reporting its first-ever quarterly loss with a 30% decline in sales year-over-year. The loss was less dramatic than expected at $0.88 a share versus estimates of $0.95, but revenue also came in $30 million below estimates at $835 million.
Of course, anyone who’s paid attention to headlines knows that the most salient factor was health concerns at several of its restaurants, which pushed down the number of transactions as well as the average check price.
From a technical perspective, the stock’s movement can be interpreted two very different ways. First, Chipotle stock prices are clearly in a downtrend, down 45% from the all-time high set last August.
But while the stock fell another 6.4% right after the earnings call, it was able to hold above the January low of $399.14.
To me, that’s a bullish signal because at its current price around $420, the downside risk for CMG is about 5% with support at $399, while the ceiling for the upside hovers around $500 or more.
All of the negative sentiment from those health concerns has already been baked into the stock, so if management has truly learned their lesson, the company should have no problem getting back on its feet and share prices should start to climb again.
Turning to Apple Stock
Tech giant Apple Inc. (AAPL) is in a similar position. Sales for the last quarter were down 13% versus last year, breaking a streak of 51 straight quarters of revenue growth.
Share prices will surely head upward again soon, but odds are the company will never be the growth juggernaut it was in the past. It’s an issue of scale: when a company grows to become the largest in the world, it’s difficult, if not entirely impossible, to maintain that robust growth pace.
Still, Apple stock trades with a very low price-to-earnings ratio of 10, and is a true value play with a solid dividend payout.
Technically, the action in AAPL is very similar to CMG, as it also fell 6% after reporting disappointing earnings but was able to hold above this year’s intraday low around $92. The stock tested support at that level several times in January and February, but then broke out to rally as high as $112 earlier this month.
Billionaire investor Carl Icahn sold off his AAPL shares Thursday afternoon, which has added to the recent selling pressure. However, I’m still bullish on AAPL overall, and I think buying the stock under $98 while watching the downside at $91.50 is a solid long-term bet with high reward and low risk.
As of this writing, Matt McCall did not hold a position in any of the aforementioned securities.
