2016 Outlook: Chipotle Mexican Grill, Inc. (CMG)

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Chipotle (CMG) stock is as poisonous to investors as it is to its customers these days.

Chipotle Stock 2016 Outlook: Can CMG Bounce Back?The popular Mexican fast-casual chain — known as a locally grown, organic, more nutritious alternative to McDonald’s (MCD), Wendy’s (WEN) or Burger King — has seen its reputation soiled over the last few months.

People in nine states contracted E. coli after eating at Chipotle, and another 140 in Boston, mostly college students, contracted a different disease — norovirus — after eating at Chipotle.

All told, more than 350 people have been sickened by either E. coli or norovirus at Chipotle restaurants since July. Needless to say, Chipotle stock has not performed well since all the embarrassing headlines started to surface.

Chipotle Stock Down 26%

CMG stock is down 26% in the last two months, dipping to an 18-month low and trading below its 50-day moving average for most of the last three months. Despite that, CMG still trades at 32 times next year’s earnings estimates.

So even after a 26% haircut, Chipotle stock isn’t your traditional value stock that Warren Buffett might recommend.

That said, there are things to like about CMG as we enter 2016: revenue growth is still at 12%, earnings per share growth is still at 10.6% and growth should continue at least through next year.

That’s no small feat at a time when sales at competitors such as McDonald’s, Yum! Brands (YUM) and Wendy’s have been slipping. In fact, among publicly traded restaurants, only Shake Shack (SHAK) has better top- and bottom-line growth.

Plus, Chipotle’s balance sheet is clean, sporting some $960 million in cash translating to $30.77 per share, and zero debt.

That’s the good news.

The bad news is that Chipotle’s sales and earnings aren’t growing as fast as before. For the full-year, CMG revenues are expected to increase 11% from 2014, while EPS is expected to rise 10% — well down from 28% sales growth and 35% EPS growth last year. Those figures are expected to slow to 10% and 8.7% growth, respectively, next year.

So the fact that Chipotle stock trades at 32 times next year’s modest earnings estimates of less than 9% growth doesn’t bode well. The stock is still overvalued, and a scandal of this magnitude isn’t going away anytime soon. When a restaurant chain makes more than 350 diners sick from eating its food, that’s something that can scare away customers for good.

2016 Still Too Soon to Buy CMG

As Buffett once said, “be bold when others are fearful.” But that sagely advice doesn’t translate well to a company with dwindling sales and earnings.

CMG will eventually stabilize and investors will focus on the industry-leading growth numbers; but not while all the E. coli and norovirus news is so fresh … or should I say rotten?

It will take a while for CMG stock to wash off the stench from all that poisoned food it served in locations across the country — perhaps more than a year.

Until it does, I wouldn’t recommend buying Chipotle stock at these still-overvalued levels. It could be poison to your portfolio.

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

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Article printed from InvestorPlace Media, https://investorplace.com/2015/12/chipotle-stock-cmg-cmg-stock/.

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