Chipotle Mexican Grill, Inc. (CMG) Stock: 3-Year Lows, And Going Lower!

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CMG stock - Chipotle Mexican Grill, Inc. (CMG) Stock: 3-Year Lows, And Going Lower!

Source: Mike Mozart Via Flickr

Chipotle Mexican Grill, Inc. (NYSE:CMG) is coming up against the one-year anniversary of its food-borne illness scandal, and it’s fair to say at this point that Chipotle stock will never be the same.

Chipotle Mexican Grill, Inc. (CMG) Stock: 3-Year Lows, And Going Lower!

CMG stock is now more than 40% over the last year and just set a 52-week low. Heck, Chipotle hasn’t traded at current levels for three-and-a-half years.  The stock, which had been hewing fairly closely to its 50-day moving average, is now significantly below that key level.

If there is any silver lining to be found in the technical picture … well, at least CMG stock looks oversold.

What’s so discouraging about CMG’s woes is how much effort and investment it has made to rebuild its brand, and how little all that has mattered. Chipotle gave away something like $70 million in free-food coupons from February to May of this year. And yet sales and traffic still haven’t bottomed.

This isn’t an existential problem for Chipotle. But Chipotle just might have to get used to being a much smaller fast-casual restaurant chain. Being linked to food poisoning in 14 states is a huge black eye. Perhaps foodborne illness are much harder for a chain to overcome in the social media era. Intuitively, at least, it makes sense. Every time CMG struggles with same-store sales, it adds more anecdotal evidence to the case.

Chipotle stock chart view 1
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And same-stores sales — a critical retail industry metric — have been a horror show.

The decreases have been so steep and relentless that investors have only wished for CMG to arrest their rate of decline, not actually recover.

There had been some reason for hope. Chipotle’s same-store sales decline slowed down from the first quarter to Q2. The cloudy part is that they still fell nearly 30% in the first quarter and 24% in the second. The most recent quarter showed further deceleration, too … but came up well short of forecasts. Comps dropped 22% vs. estimates for 17.5%.

Chipotle Stock: Is There Any Hope?

It feels like nothing is working. In the most recent quarter, total sales dropped 15%, to $1.04 billion. Analysts on average were looking for the top line to hit $1.09 billion, according to a survey by Thomson Reuters.

Worst of all, relentless marketing to win customers is pressuring margins. Wall Street expected Chipotle to post adjusted earnings of $1.58 a share.

They came in at 27 cents.

Chipotle says it can return to high-single-digit same-store sales growth next year. But it’s difficult to give it the benefit of the doubt just yet. Before the E. coli outbreak, CMG managed average sales per location of about $2.5 million. That’s down to about $1.8 million now. Tellingly, new stores are faring even worse.

Bob Derrington, senior restaurant analyst at Telsey Advisory Group, told CNBC that “average unit volumes will improve until ‘at least the year 2020 — if they do.'”

This is clearly too much for the market. It’s losing what little patience it had for this name. As bad as things have been, you could count on Chipotle stock not to fall below $400 a share. It found support at the level from late summer until last week. Then it rolled off the table.

Of the 37 analysts covering CMG stock, seven call it a sell. That doesn’t sound like a lot, but it is. Sell ratings are rare on the Street. Of the remainder, 11 have it at buy and 25 have it at hold.

CMG stock is getting so beaten down that investors could be forgiven for seeing some hidden value here. Sure, maybe. Anything is possible.

But Chipotle’s road back is longer than it thinks — and might even be blocked.

Chipotle stock looks a lot more like value trap than an actual value.

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


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

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