Is It Time to Bail on CMG Stock? Definitely not!
Shares of Chipotle Mexican Grill, Inc. (NYSE:CMG) are getting battered on the market Monday morning after news broke out of an E. Coli outbreak associated with Chipotle’s fresh produce sold at its restaurants. CMG stock was down over six percent following the announcement but recovered some of the fall on Monday morning. CMG shorts who are covering today may have, in part, contributed to lifting the stock back up. But a window of opportunity still remains open for CMG stock bulls.
Here’s Why I’m Sticking with Chipotle Stock
For starters, I, for one, welcome the company’s initiative to quickly tackle the matter in a timely matter, instead of dilly-dallying. The fact that the company management put its customers before its reputation further strengthens my faith in Chipotle.
Secondly, investors are missing the fact here that the real suspect of the outbreak is a Chipotle supplier and not the company itself. Besides, the bacterium may cause severe vomiting and diarrhea in those infected, but is not fatal. The market has clearly blown the negative news out of proportion, causing an unwarranted setback to CMG stockholders.
Thirdly, Chipotle has closed down 43 of its restaurant outlets so far, in the Oregon and Washington areas. The temporary closure of barely 2.3% of its total store count is hardly a reason to be bearish on Chipotle stock.
The Mexican restaurant, famous for its salad bowls, tacos, and burritos, has been a hit stock this year, reaching its all-time highs in the $700.00 range, until its third-quarter earnings release when it guided revenue growth to slow down in the next quarter.
Many cite the restaurant’s slowing growth as a reason to be wary of CMG stock’s future prospects. But what they conveniently overlook is how the basic business phenomenon of a product life cycle works. Slowing growth in no way translates into lack of profitability, as it is inevitable for any high-growth company to eventually move into a more mature but stable growth phase. The growth may not be in triple digits, but the growth is still there.
Millennials and Generation Zs are more conscious about their health and wellness than their older counterparts ever were. We’re seeing a gradual shift in the North American eating and living patterns as more and more Americans are switching to healthier diets and lifestyles. Chipotle’s reputation as a healthy alternative to McDonald’s Corp. (NYSE:MCD) Big Macs and Shake Shack Inc. (NYSE:SHAK) Shackburgers gives it a competitive edge in the restaurants industry. Chipotle’s customized menu options, quality fresh food, and high-end service is what blesses it with a premium brand image over rivals like Taco Bell.
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Here’s the Bottom Line of CMG Stock
With over 91% of its shares currently held by institutions, CMG stock is a Wall Street darling with no long-term debt, a strong cash position, and improving free cash flows. CMG stock is likely to rebound once the dust settles.