Has CMG Stock Finally Bottomed?
Chipotle Mexican Grill, Inc. (NYSE:CMG) has earned a few lucky appetizing gains over the past few days. Those who bought CMG stock at $404.00 on January 12 could have sold it on January 19 for well over $465.00.
The restaurant chain has been plagued by allegations of E. coli and norovirus outbreaks, which infected Chipotle stock. The company’s shares dropped from the $600.00 to just over $400.00 in the last couple months since November 2015, when new of an E. coli outbreak at Chipotle’s stores went viral. Chipotle is still enduring the consequences of the outbreaks, with sales drops that could continue into 2017, weighing on shares. However, it may have started to gain back the strength to climb again. (Source: “Chipotle Outbreaks Send Wall Street Looking for Price Bottom,” Bloomberg, January 11, 2016.)
Recently shaken by the unprecedented health crisis. In response, the company has decided to accelerate Chipotle stock’s recovery. It has launched a rather stealthy operation of a new kind, which should be effective. Indeed, under the plan, all U.S. customers will be entitled to free food in Chipotle restaurants. (Source: “Chipotle will give you more free food to win you back,” AOL, January 19, 2016.)
Has CMG Stock Finally Bottomed?
The year 2015 was undoubtedly difficult for Chipotle and CMG stock, especially in the period before Christmas, as the Mexican-style restaurant chain was deeply affected after an E. coli outbreak alongside norovirus outbreaks in some U.S. restaurants.
This left Chipotle stock with a clear challenge for 2016: recovery. In order to achieve this, Chipotle must increase sales and win back a customer base that has actually been growing internationally, in addition to its home U.S. market.
In 2016, Chipotle’s task is to increase its sales at a time when it was close to risking being forced to shut down until the cause or source of the outbreaks could be identified, if not permanently. Therefore, Chipotle must go back to the basics and win back the American public.
The growing number of Chipotle restaurants abroad—such as those in France, for instance, where Chipotle has recently opened with success—have not been affected by the outbreaks. Accordingly, Chipotle consumers will continue to receive free food in its U.S. restaurants. The campaign has not hit national levels yet, but budgets have been allotted to individual restaurants to allow for this contingency. (Source: “Chipotle’s new plan: Give away more free food,” CNBC, January 13, 2016.)
The deputy CEO of Chipotle, Monty Moran, said that expenditures dedicated for this project have been doubled. The investment appears to have started to pay off, as CMG stock has started to rise in conjunction with both the start and extension of the free food campaign. By the end of 2016, or sooner, by the speed of Chipotle stock’s recovery in just a matter of days, Chipotle could regain the majority of the revenue it lost in 2015, which is some 30% year-over-year.
While Chipotle’s E. coli outbreak has been rather mild compared to the one that affected its main competitor Taco Bell (now part of Yum! Foods) in 2006, the epidemic has tainted the brand’s otherwise well-respected reputation for high-quality, organic food.
For the time being, the experts called in to identify the root cause of the outbreak have not found any conclusive evidence yet. Chipotle needs this information in order to take reassuring measures to fix the problem and win back many more burrito fans.
If the company can pull it off, this disaster may have created an once-in-a-lifetime buying opportunity for CMG stock. Unfortunately, the best opportunity may have already passed, but we’ll see how it plays out in the coming quarters.