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Why Chipotle Stock Jumped Again Today

By Jeremy Bowman - Mar 20, 2020 at 1:19PM

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Shares of the burrito chain gained again on the apparent impression that the stock was oversold.

What happened

Shares of Chipotle Mexican Grill (CMG 4.59%) were climbing today for the second day in a row, as the market seemed to rebalance after investors bought back consumer discretionary names -- including restaurant stocks that have been hit hard in recent weeks -- and sold off consumer staples and defensive stocks that have outperformed during the crisis.

Though there was no specific news out on Chipotle, investors seemed to believe that solid restaurant stocks like Chipotle will eventually bounce back from the crisis and see them as oversold for now. Shares of the burrito chain were up 6% as of 12:21 p.m. EDT.

A Chipotle burrito with a side of guacamole

Image source: Chipotle.

So what

Chipotle appears to be in a significantly stronger position than many of its competitors. The burrito chain has no debt and has invested significantly in digital and delivery capabilities, which should give it an advantage during the coronavirus crisis. The company also said that delivery would be free for customers during March, and has partnered with Uber Eats to expand its delivery reach.

Unlike most fast-food chains, Chipotle doesn't franchise its restaurants, which may give it more security than its peers since it doesn't have to worry about propping up franchisees. Further, its employees all have benefits like sick leave, which may make them more loyal than those of other restaurant chains right now.

Meanwhile, the epidemic has forced restaurants across the country to limit themselves to takeout and delivery, which could put some out of business, giving the burrito roller an opportunity to grab market share during the recovery.

Now what

Financial results for Chipotle over the next quarter or two, at least, will be ugly, and the chain is likely to post significant losses. That means the market sell-off may not be over, as we still don't know how long the outbreak will last or what its economic impact will be. Still, when the economy and the market do recover, the burrito chain looks like a smart bet.

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Stocks Mentioned

Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
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