Please ensure Javascript is enabled for purposes of website accessibility

Chipotle Stock: Soaring 15% Last Week Is the First Step Back

By Rick Munarriz - Jan 19, 2016 at 8:30AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The burrito baron moves higher after hitting a new two-year low.

Shareholders of Chipotle Mexican Grill (CMG 3.06%) caught a break last week. The stock moved 15% higher on the week, rising as the stock market in general was selling off. 

It didn't seem as if it would work out that way when the week began. The stock dipped below $400 in intraday trading on Tuesday, the first time we've seen that happen since the summer of 2013. That was before the stock experienced back-to-back days of 6% gains on Wednesday and Thursday, following that up with a nearly 5% pop on Friday.

Last week's pop and the prior week's 14% slide find the stock essentially back to where it was when the year began, but it's not as if we can say that it's been marching in place.

We know why the stock got clobbered during the first trading week of 2016. The toll of the widely publicized norovirus and E.coli outbreaks proved to be too much to its once-sterling reputation. The "food with integrity" company announced on Jan. 6 that comps for the holiday quarter would decline 14.6% since the prior year, a sharp downward revision from its warning a month earlier that comparable-restaurant sales would clock in with a decrease of 8% to 11%. 

We also know why the stock got a boost last week. Chipotle had a highly anticipated presentation at the annual ICR Conference in Orlando last week, announcing there that it plans to shut down its restaurants for a few hours on Feb. 8 for an all-staff meeting to cover food safety and changes to its operating procedures. 

The market's swinging high and low here, but investors need to sift through the volatility. The big drop two weeks ago and the big pop last week were overreactions. 

No one should've been surprised by Chipotle's abysmal quarter. It was on Dec. 4 that it guided the market to brace for an 8% to 11% dip in comps, but it was clear that Chipotle's problems were mounting as the quarter came to a close. Besides, as brutal as a 14.6% plunge in comps for a company that has done nothing but post positive results as a public company, it is being pitted against a 16.1% surge a year earlier and a 9.3% spike the holiday quarter before that. 

There's also not a lot to get excited about last week's development. Closing all of its restaurants until 3 p.m. local time on Feb. 8 is mostly lip service. It doesn't have to do that to get its message across, and given the high employee turnover in the dining industry, it won't be long before your burrito is being rolled by an assembly line that wasn't there that day. 

Last week's pop was mostly a sigh of relief for a former market darling that had given up too much ground before that. It kicked off last week trading 46% lower than its all-time peak this past summer. The bounce was natural after the wave of selling, and it will take more than just an all-staff meeting to woo customers back. Things will be great for shareholders when patrons do come back, but just saying that you want to reduce the risk of another outbreak to "near zero" and missing out on a day's lunch traffic isn't going to be enough. It's the first step. There will have to be many more steps in the future.  

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
CMG
$1,329.02 (3.06%) $39.50

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
336%
 
S&P 500 Returns
115%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 06/26/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.