Panic at the Bistro

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This article is part of our Real-Money Stock Picks series.

On Wednesday, something spurred panic at the burrito bistro, and that alarm spread through other chains on restaurant row as well. After an analyst comment about slowing same-store sales growth at Chipotle (Nasdaq: CMG  ) , the company's shares plunged for two days running. It's kind of like somebody yelled, "Fire!" in a crowded theater, but investors who scrambled wildly to get out will probably get burned over the long haul.

Investment Technology Group released comments that spooked investors more than a rash of food poisoning, saying "Chipotle's same store sales comparisons appear to be decelerating sequentially" and predicting that second-quarter comps only grew 7.5% versus the consensus analyst estimate for 10% comps growth in the quarter.

Here are a few striking factors to consider. First off, anybody who follows the restaurant industry knows that a 7.5% increase in quarterly same-store sales isn't exactly a pathetic same-store sales figure, even if it indicates some sequential slowdown from Chipotle's past growth.

Secondly, the Chipotle news apparently rendered other restaurant companies' shares unpalatable to investors as well. For example, Panera (Nasdaq: PNRA  ) and Starbucks (Nasdaq: SBUX  ) also weakened considerably and were supposedly following on Chipotle's lead. Even Dunkin' Brands (Nasdaq: DNKN  ) was pulled along for the ride, even though it really doesn't seem to bear much resemblance to Chipotle. Numerous restaurant stocks still suffered on Thursday, too. (Granted, Thursday was a generally bearish day on the trading floor.)

These are the types of moments long-term investors wait patiently for: panicky selling and subsequent bargain prices. Chipotle's well off its 52-week high of $442.40, much like McDonald's (NYSE: MCD  ) shares have recently retreated from their peak of $102.22.

If you've had a hankering for shares of eateries like these, it's a good time to go shopping. Having bought shares of Chipotle in April for the real-money stock portfolio I manage for, all I can say is that I wish I'd waited just a tad longer for a cheaper price. (I've bought Starbucks for the portfolio, too.) And of course, I'm mulling the idea of buying more for the portfolio at this point, and wouldn't consider selling unless I felt that something was truly amiss for the long haul.

The lower shares of stellar companies get, the better a bargain for investors. If you're in for the long haul, don't let panic at the highest-quality bistros bother you. Chipotle is one of those companies that's built to last, and a better near-term price amid some short-term negative noise is nothing to panic about.

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Alyce Lomax owns shares of Starbucks in her personal portfolio. The Motley Fool owns shares of Starbucks, McDonald's, Chipotle Mexican Grill, and Panera Bread. Motley Fool newsletter services have recommended buying shares of Panera Bread, McDonald's, Chipotle Mexican Grill, and Starbucks; writing covered calls on Starbucks; creating a bear put spread position in Chipotle Mexican Grill; and writing naked calls on Dunkin' Brands Group. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

Read/Post Comments (6) | Recommend This Article (8)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 29, 2012, at 10:29 AM, TMFKnightly wrote:

    +1 for headline

  • Report this Comment On June 29, 2012, at 12:42 PM, accelerando wrote:

    In another era this guy would've been walking up to folks at a racetrack telling em that he's got a hot tip on Greased Lightning.

    cmg is still at 54x earnings and ANY slowdown in growth will cause the stock to tank (like it is doing) because the stock is priced as if it were going to continue growing at 30-35% out into the indefinite future which, although possible, is highly unlikely.

    MF has simply become a tout shop -- nothing more -- picking big-time momentum stocks in the hopes that enough go up that you, the reader, are fooled into buying their tip sheets. It really is no different from the racetrack.

    Buy their tip sheets, if you must for a few bucks, but please don't put any of your hard earned money into overvalued stocks like cmg -- great company, ridiculously overvalued stock, risk/reward ratio exceptionally negative.

  • Report this Comment On June 29, 2012, at 2:18 PM, TMFLomax wrote:

    Thanks TMFKnightly.

    accelerando, I'm not a fan of racetracks or hot tips; I believe Chipotle is a great, well managed company with a huge differentiating characteristic: focus on healthy, natural ingredients in its offerings. I'm also bullish on its ability to expand into different concepts like its new Asian concept using its same basic model. The fact that I bought this stock for a real-money portfolio means we can track the returns over the long haul.

    Of course we're big advocates of different opinions here, and therefore all investors should make up their own minds and feel free to disagree, and I do understand that many believe CMG is very overvalued.

    PS: And I am not a guy. ;)



  • Report this Comment On June 29, 2012, at 3:08 PM, assisgnmeaname wrote:

    Any thought to the idea that day 2 sell-off was also a sign that the high fliers in the group are especially vulnerable to the unexpected insurance tabs they will have to pick up soon?

  • Report this Comment On June 29, 2012, at 3:13 PM, assisgnmeaname wrote:

    Also Alyce, since you follow CMG as a professional, why do you perpetuate the canard that CMG makes healthy food, when it's simply makes humanely sourced and, where possible, organic food? That may be comforting to CMG's customers, but an analysis of their sodium, saturated fat and caloric content cannot be called healthy.

  • Report this Comment On June 29, 2012, at 7:04 PM, SwiperFox wrote:

    Has anybody mentioned lately that Chipotle's burritos suck? Healthy? Organic? Fortunately, nobody talks like that when I go over to Campo's on Washington.

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