Thank you. This stock is severely mis-priced. A 17 PE ratio would be giving them a HUGE benefit of the doubt. KORS had negative comps, which were not even close to as bad as CMG's and they took the PE ratio down to 8. The stock went from $100 to $35. There really is no reason why Chipotle shouldn't be trading at $150. That's what the normal scenario is for this sort of situation. The market took Starbucks down to $6 and they didn't have 1/10th of these problems.
Might be that it has so far to fall that the rally, combined with the company re-purchase was simply inevitable. Look at a one year chart, you can just see the $200's materializing on the next move down.
Look at JACK which owns Qdoba, a restaurant that more often than not, wins taste and value comparisons with Chipotle.
JACK stores were experiencing double digit comps in 2015. The streak ran out, they reported "only" 1.5% comp increases across their stores and the stock gets whacked 36% down from $100 to $64.
This is the haircut of a growth stock becoming a non growth story, with of course, an appropriate 17 PE ratio.
Now lets look at Chipotle. First, they too reported low single digit comps when the stock was at it's peak, $750 per share. Then the food crisis where the company poisoned and destroyed its relationship with so many customers. Their comps went from low single digits in October to -10 in December, -30% in December, -36% in January and -26% in February. The current haircut in percentage terms? $750-$450 or 40%. PE ratio who knows but above 30, maybe as high as 60.
So, , they already had become a non-growth story. Makes sense. New stores now cannabalize sales from existing locations. The taste addiction craze that had many going there regularly had subsided. It was due for the appropriate haircut of 35% which prices it at $487.
Essentially, the entire brand destruction that cost the company 20-30% of its customers, hasn't been priced in at all. The market is acting like it never happened. It's just forgetting about it.
Or, the market used the $1 billion buy back as an insurance policy to pump the stock, get the Chipotle fan boys buying 50 and 60 share lots and ran it up as far as it could go before reality set in.
The loss of customers will have to be priced in. Company says it's finding it difficult to get them back, there is no reason to believe otherwise, at this point. May see a few mini-rallies but if you're long, use them to get out before it's too late. And if you're short, hammer away. Rare to get this sort of mis-valuation in the market.
Cramer's been pumping chipotle since they missed their numbers in October. October 23rd:
"I think that when you look back, you'll find that you are getting a chance to buy the stock of the best company in the industry at a new trough if you simply wait a few weeks for the dust to settle," Cramer said.
That's a $360 point down move you would be holding if you listened to him. He's just wrong about Chipotle. Not a growth company anymore and earnings will be way down for at least a couple of years.
Glad I was wrong. Deep selling. Will continue for weeks. You'll see $338.
The time for thinking about the scenario has past. The company told everyone what the scenario is. They lost 30% of their customers. they got 1/3 of that 305 back and said don't expect us to get the next 1/3rd back nearly as quickly. When a high multiple growth stock loses 20% of its customers, the stock gets hammered. Every time, no exceptions. Saw it in Starbucks eight years ago. Lululemon Three years ago.
Will it ever get back up here? Only if they change the approach and come up with a new addictive taste. No plans for that to happen so it's going to be a long wait from at or around $300. My advice, cover, short and buy next year, at this time.
Same mentality as the Starbucks investors back in 2006/2007 when it went from $38 down to $26. "Oh, it's Starbucks!! It won't go much lower. Bottomed at $8.
Now those Starbucks investors did make a fortune hanging on but Chipotle isn't Starbucks. If Schultz ran Chipotle, then it's a home run. But Chipotle is run by Young Frankenstien and that guy couldn't make a right move if his life depended on it. A true moron, as we're seeing. Until they change the menu bu adding the new addictive craving and change their crisis approach 100%, this has no chance of trading above $300 a share. There is no sign of any of that. They need a new CEO.
the company says they got back 1/3rd of the 30% they lost and they don't expect to get back the next 1/3rd, any time soon. For a growth company, losing 20% of your customers is like a terminal cancer diagnosis. Enjoy your Chipotle, don't buy the stock.
Anyone who knows anything about retail, and you clearly don't, knows that if it were an aberration then they would have gotten all the customers back by now.
The reality is they got back 1/3 of the lost customers and the CFO said, "Don't expect us to get the next 1/3 back nearly as quickly." When you're a growth stock and you lose 20% of your customers, you're royally screwed.
As a long, you are not seeing anything clever in the way management is handling this. Doubling down of coupons? What a joke. Those coupons scream one thing to the people opening them. "Chipotle is now McDonalds." And they are. Look for them to be lowering prices this year, the only customer they have left is the poor and uneducated.
However, it really could be a sprint for the exit. Hard to believe this came as a surprise to anyone but the stupidity in this trade has been huge so it wouldn't surprise me at all to see a Valient type day, either. But if I had to bet, I'd bet on an option expiration push to just below the $480 level.
I call it the "Skyscraper Myth." Analysts walk around Manhattan and see half the line they used to and think, "Well it's busy in there again, Chipotle is on the way back." But the true reality is the old lines used to be so long that half the people who wanted to eat there wouldn't. So now, the half line represents ALL the people willing to eat at Chipotle since the line is no longer a deterrent to anyone.
NYC with the skyscrapers jamming people into a tight space is the greatest lunch market in the country. Of course you will find enough people to form a line. But the truth is, the lack of jam packed speaks volumes to the percentage of people turned off and where they choose to eat at home in the suburbs where they have ore choice. It ain't Chipotle.
Completely irresponsible. Stupid is the best way to describe it. Hubris is also appropriate. They actually thought people would just snap back into their long lines, like it was no big deal.
The CEO, Young Frankenstein, was waxing poetic about the AMAZING relationship they had with their customers, in Orlando in January. I knew they were dead at that point.
Seriously, they BLEW all their cash on buy backs. So if this gets just a little worse, it's going to get so ugly it will be hard to look at. Even if things go well, this stock is getting hammered.
The best part is they're doubling down on the coupon strategy that hasn't worked. Getting a free coupon from Chipotle just reaffirms the mess they're in to anyone who receives one. Horrible damage control management from the CEO, Young Frankenstein. He knows food but boy is he an idiot on the crisis management front.
600 million? They already bought $800 million and still have $250 million more to go. I suspect the fact they haven't been able to dent the customer loss metrics in any meaningful way has brought them to their senses and perhaps now, they will hold off on additional purchases. Just burning money if they're buying now.
and there's a lot more where this came from. I still shake my head at the 140 point bounce. One of the most outrageous things I've ever seen on wall street and that's saying something. This is going to fall like Starbucks, all the way down below PE ratio...$238 is my number. Then I'm a buyer.