The rollercoaster ride of Chipotle's (CMG) stock price may appear to be in an endless freefall,
but that's not to say an upswing down the road is not out of the question. The bears will say the
numerous health and safety disasters are too much to overcome, but I say time heals all
wounds. Take the Jack in the Box E. Coli incident in 1993. Four children died in an incident that
put Jack in the Box in a seemingly unrecoverable position. In the years to come Jack in the Box
eventually bounced back and the stock boomed. Chipotle's situation is slightly different due to
the multiple incidents, and other factors in play, but there are a lot of core strengths to Chipotle
that investors can expect to see long term returns from.
Fast Casual Industry
At this point everyone is probably sick and tired of being told about the fast casual industry. That
being said let me tell you some more. For a time stock prices of just about every fast casual
boomed out of sheer excitement, but that has been reigned in as growth has slowed. However,
the growth opportunities are still enormous and promising. Chipotle's brand may be maligned,
but nevertheless they basically invented fast casual and if nothing else have the name
recognition to ride the fast casual wave. Look for a slow but steady growth in Chipotle's same
store sales, as demand for fast casual at the very least remains constant, but Chipotle's past
wrongdoings become more forgotten.
There's no getting around the fact Chipotle missed on EPS and revenue targets in October, but
the direction is promising and the timeline for recovery is on track. Revenue climbed almost 9%
year over year showing that consumers faith in Chipotle is starting to be restored. Part of the
growth can likely be attributed to the aggressive marketing and promotional campaigns put on.
These combined with the introductions of new products, most predominantly queso and frozen
margaritas, show that management is willing to roll the dice and experiment a little bit. Again,
this is why I'm confident that Chipotle will be well off in the long run not necessarily in the short
term. New products are expensive, promotional buy one get one free guacs are expensive,
developing the app and online ordering capabilities is expensive, however all this will create
tremendous value down the road.
Go to the Stores
The biggest reason for my bullish take on Chipotle is first hand experience. While obviously
limited and loaded with biases, seeing and hearing is believing. Anytime I go to Chipotle the
lines are enormous. They are still tremendously popular with Millennials and Gen X'ers, who are
only going to start representing more and more of the market. People love the food and at the
end of the day, time heals all wounds. It may be a bumpy ride, but possibly even years down the
road Chipotle will take you straight to the top.