Introduction
I wrote a piece on Chipotle Mexican Grill (NYSE:CMG) on July 3 following a precipitous fall in the share price the week before. You can read the report here.
In it, I suggested that the current share price of CMG was basically "priced for complete success," in that the implied financial performance over the coming couple of years that was at the time reflected in the share price back then brought the company's revenue/restaurant operating margin basically back to where it was pre the E. coli outbreak in last 2015.
This meant that any investor buying at then price ($420/share) was basically taking on all the risk that the company would, in the near term, regain the level of profitability and revenue growth that it enjoyed pre the E. coli outbreak, leaving no real margin or safety.
Since then, the share price has fallen some 19% and the company has released its 2Q17 results - 2 criteria that I suggested investors wait for before acquiring shares.
Source : Googlefinance
On the first criterion - the 2Q17 results - the company more or less disproved the hypothesis that it was going backwards. It generated comparable sales growth of over 8% and a restaurant level operating margin of 18.8% (compared to 15.5% in 2Q16 and 17.7% in Q117), well on the path to regaining the pre E. coli performance metrics. So a tick there.
On the second criteria, the much publicised "outbreak" (and I use that term very loosely) of norovirus on July 18 in one of the Virginia restaurants has caused panic amongst investors and has pushed the price down some 19% to 52-week lows. Three weeks ago, pre norovirus, I thought a price in the "mid to high 300s" made sense. I still do, so a tick there as well and have initiated an initial position in the stock.
