Why Chipotle Shares Got Spit Out

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Chipotle Mexican Grill (NYSE: CMG  ) plunged 15% today, after the burrito specialist's quarterly results and guidance missed Wall Street expectations.

So what: Chipotle shares have skyrocketed over the past few years on breakneck growth, but today's third-quarter results -- EPS of $2.27 versus the consensus of $2.30 -- coupled with downbeat guidance for 2013, is triggering concerns over cooling sales going forward. Of course, the stock had some pretty high expectations built into it, so it's no surprise that even the suggestion of slowing growth -- be it from increasing competition, declining popularity, or even just cautious consumer spending -- is hitting Chipotle bulls hard.

Now what: Management now sees flat to low single-digit same-stores growth in 2013, down from its prior forecast of a mid-single digit increase. CFO John Hartung tried to reassure analysts in a conference call:

[W]e're confident that the growth options we're seeding today, including ShopHouse and Chipotle outside the U.S., will provide attractive value-enhancing growth investments in the future. In the meantime, we'll continue to invest in our high-returning domestic restaurants and we'll continue to opportunistically repurchase our stock to enhance shareholder value.

Unfortunately, with the stock still sporting a lofty P/E of roughly 30, I'd wait for even more of a pullback before biting into that bullishness.

Interested in more info on Chipotle? Add it to your watchlist.

Fool contributor Brian Pacampara has no positions in the stocks mentioned above. The Motley Fool owns shares of Chipotle Mexican Grill. Motley Fool newsletter services recommend Chipotle Mexican Grill and Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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  • Report this Comment On October 19, 2012, at 4:53 PM, EquityBull wrote:

    Stock trades at just 21 times next years earnings estimates. If they just hit that number the stock is at fair value as it is growing top and bottom 20%

  • Report this Comment On October 20, 2012, at 2:41 PM, ikkyu2 wrote:

    Also, you may want to back out the 650 million in cash when calculating a trailing P/E. That is almost 8% of the stock's market cap.

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