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Is Chipotle Mexican Grill, Inc.’s Health Scare Going to Permanently Scar the Company?

By Motley Fool Staff - Feb 8, 2016 at 6:25PM

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The crisis may be over, but how long the effects linger remains to be seen.

Shares of Chipotle Mexican Grill (CMG 3.06%) have taken a beating since the onset of its E. coli outbreak last year.

In this video segment, Motley Fool analyst Gaby Lapera and contributor John Maxfield look at how bad the company is hurting since E. coli and Norovirus hit some of of its locations, as well as how other companies have fared in the face of outbreaks like these in the past.

A transcript follows the video.

This podcast was recorded on Feb. 2, 2016. 

Gaby Lapera: And on the opposite side of this spectrum, you have a company that is probably a pretty solid company, but there's some internal stuff that's going on right now that makes it look a lot less valuable than you might think it would be. Chipotle is a great example of that, with the E. coli scare that's going on right now.

There's nothing technically wrong with Chipotle's fundamentals, if they can't get this E. coli thing under control -- we'll see -- but, that should be a short-term hindrance to them. I don't think there's anything generally wrong with that company. But the shares are a lot lower than what you'd expect, and they have been historically.

John Maxfield: Yeah, they're a lot lower. They peaked well above $700, and they're down into the $450, $460 range right now, way down.

Lapera: So cheap! It's like it's nothing for me at all! [laughs]

Maxfield: Yeah, it makes me shed a few tears. Full disclosure, I've been buying some Chipotle, too. Let me share my thesis on Chipotle -- if you look back at every single major food-service company in the United States -- I'm talking McDonald'sWendy's, Burger King, all of them. Even Wal-Mart, CostcoKroger -- every single one of them has been through something just like this. McDonald's had the first well-known E. coli scare in the early 1980s. Jack in the Box had one in 1993, and this is horrible, but it's important to keep all this in context -- four people died because of the E. coli situation at Jack in the Box in 1993.

But yet, its stock, after the market pounded it and it went through lawsuits and all that, its stock went on to return multiple thousands of percents since then. So you have to look at these things, and you have to ask yourself, based on history, is this a temporary thing? Or is this something that brings companies down? And in my analysis of it, this is a temporary thing -- at least that's what history tells me.

Lapera: Yeah, I'm with you on that one.

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