Is $350 Next for Chipotle Mexican Grill?

I have been extremely bearish on Chipotle Mexican Grill (CMG) ever since the dawn of the E.Coli breakout. Since then, Chipotle Mexican Grill has lost a considerable amount in sales and store traffic has also taken a hit. As a result, shares of Chipotle Mexican Grill have plummeted almost 30% in the meantime.

Despite the fall in stock price, I don’t think Chipotle Mexican Grill is still a buy and investors should watch it from the sidelines and wait for a better entry point and I think the stock can fall to $350 in the coming weeks.

Despite the Drop, Stock is overvalued

Chipotle Mexican Grill is down over 40% from its 52-week high levels, however, the stock still remains undervalued.
This is primarily because Chipotle Mexican Grill’s earnings have fallen at a faster pace than the share price. Back in November, Chipotle Mexican Grill was trading at a trailing earnings multiple of around 30.

As of writing, Chipotle Mexican Grill’s trailing P/E has shot up to 39, making the stock overvalued. Chipotle Mexican Grill’s earnings have taken a huge hit as the company is trying to restore its brand image by offering various discounts to customers. However, it seems like Chipotle Mexican Grill’s initiatives are not reaping profits as the company’s comps have continued falling in double-digits.

Chipotle Mexican Grill comps were down nearly 30% for the first three months of 2016, and it will take a lot of time for the company to recover from this debacle. Chipotle Mexican Grill’s heavy investments on advertising and discounts have not paid off. Also, the company has wasted hundreds of millions on buying back shares in the last few quarters as well. I say wasted because Chipotle Mexican Grill’s shares are trading a lot lower right now than when the company sanctioned the buyback.

I believe Chipotle Mexican Grill’s management could have handled the situation better. However, as of now, I think the stock will continue struggling. In fact, if Chipotle Mexican Grill falls below the $400 resistance level, the stock could fall to $350 pretty soon.


As mentioned above, Chipotle Mexican Grill’s earnings have fallen at a faster pace than the stock. As a result, despite the pullback, the stock remains expensive. The company’s discounts and advertisements have not helped curb the comps decline and this trend will likely continue. I think Chipotle Mexican Grill can fall to $350 in the coming months, which is probably when I would consider looking at the stock again. Till then, I think investors should sell the stock and avoid any temptation to buy it on the pullback.
Published on Jun 13, 2016
By Ayush Singh

Copyrighted 2016. Content published with author's permission.

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