A Win for Chipotle Stock
If Chipotle Mexican Grill, Inc.’s (NYSE:CMG) E. coli and norovirus outbreaks are still keeping customers away from its restaurants and investors away from Chipotle stock, the company has a strong response. CMG stock has lost some 23% over the past year in response to the food contamination claims.
Chipotle halved executive compensation. If the executives want to get it all back, Chipotle stock has to go up. Indeed, the idea is that a good chunk of executive compensation depends on the performance of CMG stock. (Source: “Chipotle Executives’ Pay Is Tied to Share Price,” The Wall Street Journal, March 13, 2016.)
Chipotle stock closed 1.5% higher on the news, but don’t be worried about Chipotle executives; they still earned well above $10.0 million. The stock price suffered in 2015 and 2016 as Chipotle’s revenue rose at a much slower pace than previous years. Whereas, revenue grew 28% in 2014, it grew 9.6% in 2015. By most standards an enviable record but, in fact, it was a major slowdown. (Source: “Chipotle co-CEOs still make $14M after pay cut,” USA Today, March 14, 2016.)
However, Chipotle has the potential to regain that level of growth and demand. This also explains the executive pay cut and its link to CMG stock performance. Indeed, Chipotle may have grown past its food safety concerns and it is, if $500.00 can be defined as such, a bargain at current prices. Chipotle’s fundamentals and business model are the same.
Chipotle does not need to worry about major legal ramifications and it can focus on appealing to the masses, offering the “fresh food cooked on the premises” model.
Chipotle is now looking to export its model. It has already set foot in Canada and now covets a larger presence in Europe, where it has already gained a strong following in Britain and Germany. It has four restaurants in France, opening the last facility in Paris just last October. In other words, Chipotle is growing and that will help push Chipotle stock back to the pre-E. coli crisis trading range of $700.00 to $750.00.
Founded in 1993, the Denver-based Chipotle now has approximately 2,000 restaurants, primarily in the United States, using the quality of its “raw materials” (natural and whole ingredients) as the centerpiece of its business approach. The restaurants are known for having banished genetically modified ingredients from its burritos and tacos; Chipotle has also banned meat sourced from animals raised with antibiotics.