Chipotle Mexican Grill, Inc. (CMG) Stock Will Be on Fire … Just Wait

Advertisement

Shares of Chipotle Mexican Grill, Inc. (NYSE:CMG) have been disappointing investors over the past year as they waited for the fast-food restaurant to pick up the pieces from its E.coli scare. Chipotle stock has lost a staggering 40% over the past year as the firm’s efforts to coax customers back into its locations failed.

Chipotle Mexican Grill, Inc. (CMG) Stock Will Be on Fire ... Just Wait

Investors have remained wary based on the firm’s most recent earnings reports, but easier comparisons and fading focus on last year’s problems make now a good time to buy CMG stock.

There’s no doubt that Chipotle stock has suffered due to the company’s food borne illness issues, but the worst of those problems are probably over.

The public is surprisingly forgetful when it comes to such matters, and big names like McDonald’s Corporation (NYSE:MCD), Costco Wholesale Corporation (NASDAQ:COST) and KFC have all been through similar situations. Much like its peers, CMG will overcome the E. coli scare and go back to being a popular player in the fast-food market.

CMG Recovery Efforts

One of the things investors have been worried about is the amount of time that it has taken for CMG stock to come back from the food borne illness issues. The company immediately shifted its focus to food safety in order to prove its commitment to customers’ health and safety. While this helped to ease peoples’ minds about contracting diseases at Chipotle restaurants, many complained about food quality dropping after the changes were instituted.

Instead of trying to force these changes, CMG admitted that the new service procedures were hindering its promise of fresh, delicious ingredients and immediately began to make changes. Now, the fast food restaurant has found a balance between strict food safety procedures and keeping some of the preparation in-store in order to make sure that ingredients are as tasty as customers’ remember.

While CMG stock’s rapid decline indicates that things are still dismal for the burrito-maker, the firm’s third-quarter results proved that slowly but surely, Chipotle is worming its way back into customers’ hearts. Management noted that almost all of the firm’s most loyal customers have forgiven the restaurant and started to return.

Over the last six months, CMG’s aggressive marketing tactics have ushered 30 million new customers to its stores as well. So while there are still some headwinds, Chipotle appears to be getting back on track.

Another important factor for investors to keep in mind is that CMG is now approaching a much easier year comps-wise. This year, Chipotle stock got hammered after releasing each of its quarterly results because same-store sales showed massive declines compared to pre-E. coli quarters. However, in the year to come, CMG’s quarterly results will have much easier comparisons and will give investors a better idea of how well the firm is recovering from the E. coli problems.

What About ChopHouse?

Last week Chipotle Co-CEO Steve Ells told investors that the company’s Asian venture, ChopHouse, would be sold off so that the firm could focus on its flagship Mexican restaurants as well as its newer burger and pizza chains. This was seen by many as a major misstep by management, but Ells’ willingness to admit that ChopHouse isn’t a good play for the company right now before it became a money pit is a good thing.

Focusing on a smaller number of restaurants is in Chipotle’s best interest, especially with worries still plaguing its Mexican brand.

Chipotle Stock Is a Good Long-Term Bet

CMG stock investors may not see the explosive growth that investors enjoyed in previous years, but the stock is certainly headed upward. This year has been difficult for the firm, but the lower stock price and uncertainty has provided a good buying opportunity for long-term CMG stock investors who are willing to ride out the storm.

Furthermore, activist investor William Ackman’s statements yesterday regarding his confidence in a positive rebound for the company have added fuel to the long-term story for Chipotle stock. CMG stock saw a 6% boost in midday trading due to his optimism in the company’s future and his presence has also prompted CMG to work “actively … on board refreshment,” which could bring a breath of fresh air to the stock.

The bottom line is that Chipotle will come back from the E. coli scare, and investors who believe in the firm’s recovery plans will be along for the ride.

As of this writing, Laura Hoy did not hold a position in any of the aforementioned securities.

More From InvestorPlace

Marie Brodbeck has a Finance degree from Duquesne University and has been a financial journalist for more than a decade. Her work can be seen in a variety of publications including InvestorPlace, Benzinga, Yahoo Finance and CCN.


Article printed from InvestorPlace Media, https://investorplace.com/2016/11/chipotle-mexican-grill-inc-cmg-stock-fire-wait/.

©2024 InvestorPlace Media, LLC