In recent months, Chipotle (NYSE:CMG) has been in the headlines due to an outbreak of E. coli- and norovirus-related sicknesses linked to its food, and the public reactions -- both from its customers and the market -- have been costly.
In this clip, Motley Fool co-founder David Gardner explains how this debacle compares to other safety scares, how Chipotle's no-nonsense reaction is working in its favor, and how long-term investors should look at the stock in light of all the news.
With the restaurant chain trading significantly below its 2015 highs, is Chipotle stock now a bargain, or are investors at risk of trying to catch a falling knife?
Listen to the full podcast by clicking here. A transcript follows the video.
This podcast was recorded on Jan. 19, 2016.
Sean O'Reilly: First up is a company that's in the news a lot these days, unfortunately not for good reasons: Chipotle Mexican Grill. You wrote back a little over a year ago, "Chipotle keeps posting stunning growth at both new and existing stores. Even if that growth slows down in the future, we still think that burrito chain is on a roll. As consumers demand higher-quality fast food, Chipotle seems ideally poised to satisfy this big shift in dining trends."
You also note Pizzeria Locale and ShopHouse concepts, they're all over the news, obviously not for their delicious burritos. This definitely feels like a short-term hiccup in, obviously, an amazing business. Again, we're all Fools here, so we know the importance of long-term thinking. What's your opinion on how they're handling this little E. coli -- I shouldn't call it little, because people are getting sick.
David Gardner: Right.
O'Reilly: How do you think they're handling it? What are you focused on?
Gardner: I think they're doing a great job. Steve Ells and Monty Moran, they've been public through media, they've made all kinds of statements, they've also invited in best practice analysts, the government, etc., to say, "What can we do better?" They've essentially adopted all of those suggestions.
The stock is down about 35% or so, just in the last few months. This is a stock that was over $750 in October, and today it's just right around $500, a little bit below. That's a remarkable drop, one-third in value, for something that's really just a -- relatively, because, as you were saying, Sean, it's a serious problem, and they're taking it much more seriously than I'm about to.
But I think this is going to be kind of like the Tylenol scare, which really depressed Johnson & Johnson for a little while, then of course, we all look back and forget. Or BP. People said, "I'll never go to BP again," but I think a lot of us are going back to BP to fill our cars. I think it's one of those situations.
So, I really, obviously, like the stock a great deal. In fact, it's in the running -- we're down to two stocks in Supernova -- for the so-called "top stock of 2016." That's an annual thing we do in Motley Fool Supernova through our Explorer mission. Last year, the top stock was Amazon.com, and it was a pretty awesome year for them.
O'Reilly: Ugh, why didn't I listen?
Gardner: It was up about 120%, which was truly remarkable. We're not nearly that good. But, for Chipotle to be down ... also, Under Armour, which I think we might talk about as well today. Those two are the finalists for stock of the year for Supernova in 2016, and that says a lot about what we think about Chipotle.
O'Reilly: Feel free to chime in here, Vince, but I actually loved it when I heard that they were going to close all their locations for one day for a company-wide meeting. I love that. That's awesome!
Gardner: It's remarkable. It's one of those things that you don't expect companies to do, especially when it's that large. We talked about, you mentioned, ShopHouse and Pizzeria Locale, I mean, it's a company that has a number of additional brands beyond just Chipotle.
But even though Chipotle has been in the news for all the wrong reasons for the last couple of months, the truth is, there were a ton of happy burrito-eating customers yesterday and the day before. Far more than people who are troubled or staying away from Chipotle.
So, I think it remains a really great company. And in some ways, I think it's an even better company based on the problems that they've had and the reaction that they're having to those problems. So, I obviously admire Chipotle. It sounds like I'm not the only one. It's just a stock. If we get it wrong, if we say it's the top stock for 2016 and it has a so-so year, I'll still like it for the next three-plus years.
Vincent Shen: I'll echo David's sentiment there. Overall, there's a Chipotle right in my neighborhood, and every day, I get off the Metro ...
O'Reilly: And I buy a burrito. Just kidding (laughs).
Shen: And I see it around dinnertime, just before, and the line, every night, would be to the door or out the door. And now there's maybe two or three people. So, there's undoubtedly that slowdown. They talk about how comps fell during the holiday season ...
Shen: ... like 50%, almost.
Shen: But overall, love it or hate it, I feel like the public and a lot of consumers in general have short memories. And this time next year, with how well the company's addressed these issues, how open they've been about communicating about working with government safety organizations and making sure they're implementing these best practices ...
O'Reilly: It definitely seems like the company's heart is definitely in the right place.
O'Reilly: It's really long term, with what you need to be concerned about with conscious capitalism and all that good stuff.