Sometimes when a stock gets beaten down, investors think it becomes a value play. They feel as though they can pick up some shares on discount, ride the stock back up, and sell out of their position, making a nice profit along the way. Some investors feel this way about Chipotle.
Chipotle (NYSE: CMG) was the darling of Wall Street in the casual dining sector. With a share price over $700, investors were banking on phenomenal growth. But then some unfortunate events happened and the stock price tumbled.
Currently, Chipotle is trading for less than $300 per share. Based on the $700 share price, the current stock price looks like a steal. You might be tempted to buy in and make a quick return on your investment.
But you shouldn’t. This stock is toxic and it isn’t getting back to $700 per share any time soon. In fact, it might never get back to $300 per share.
In this post, I’ll share with you the issues with Chipotle and why this stock should be avoided at all costs.
What Went Wrong For Chipotle
Prior to 2015, everything was running smoothly for Chipotle. They were growing same store sales, increasing their customer base, and killing it on the revenue side.
But late in 2015, there was an E. Coli outbreak and a norovirus outbreak at some of its restaurants. It took a few months for the company to figure out the source of the issue and to set in place new procedures so a similar outbreak never happens again. But the damage was done.
The stock dropped by 60% because of this issue.
Customers stopped eating at the chain as they didn’t trust the safety of the food. In fact, before the outbreak, a surveyed showed close to 70% of respondents view Chipotle in a positive light. Immediately after the outbreak, that number dropped to less than 50%.
The Struggles Continue
It’s been two years since the outbreak and Chipotle is still struggling. What are the reasons for this? There are many, but here are the highlights:
