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Why The Chefs' Warehouse Stock Fell Today

By Jon Quast – Aug 31, 2020 at 2:01PM

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This analyst didn't recommend buying shares, so investors are selling.

What happened

Shares of The Chefs' Warehouse (CHEF -0.38%) fell on Monday, despite an analyst recommendation to hold shares. But a hold recommendation is less enthusiastic than a buy recommendation and may have sparked some selling from shareholders.

As of 1:45 p.m. EDT, The Chefs' Warehouse stock had fallen 11% for the session.

A frustrated man lays his head on a table with a down, red stock chart behind him.

Image source: Getty Images.

So what

According to The Fly, Lynne Collier from Loop Capital started covering The Chefs' Warehouse and gave it a price target of $18 per share. That was about a 10% premium to where the stock traded at the time and on the surface appears modestly bullish. Indeed, Collier cited "growth opportunities and strong liquidity" as reasons to like the company.

However, some of The Chefs' Warehouse's primary customers are restaurants and hotels -- two industries decimated by COVID-19. Until these industries are back to normal, the company's business will also be challenged. This was the reason Collier failed to give the stock a ringing endorsement. 

CHEF Chart

CHEF data by YCharts

Now what

If you bought The Chefs' Warehouse stock in 2020, it makes a huge difference when you bought shares. The stock is up over 300% from March lows, but it's also still down over 60% from 52-week highs. That's quite a disparity. But I suspect it will take some time to recover to previous highs. Net sales fell by 51% in the second quarter, and the company still isn't providing guidance since it doesn't control when restaurants and hotels reopen fully.

Value investors will need to keep this mind. Also, the company has a net debt position of $193 million.That's not necessarily a deal-breaker, but it's a very pertinent consideration when making a long-term investment.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Stocks Mentioned

The Chefs' Warehouse, Inc. Stock Quote
The Chefs' Warehouse, Inc.
$28.97 (-0.38%) $0.11

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