Why We Have An ‘F’ Grade On Chipotle Stock

Chipotle Mexican Grill, Inc. (CMG – Analyst Report) has its back to the wall!

The burrito maker was once the darling of Wall Street with revenues exhibiting a extraordinary CAGR of more than 23% (till 2014), since going public. This stunning growth was supported by solid comps growth. However, toward the end of last year a series of E. coli and norovirus contamination issues ruined its fairy-tale growth story. In fact, the company lost more than 30% value over the past year.

The stock currently has a VGM score of “F”. Here “V” stands for Value, “G” for Growth and “M” for Momentum and the score is a weighted combination of these three scores. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at the VGM score.

Chipotle fares poorly in the Style Score department, with a Value, Growth and Momentum score of F, D and D, respectively.

Negative Publicity Since 2015-end

Chipotle’s fall from grace started with the E. coli outbreak which began in Oregon and Washington at the end of Oct 2015 and later spread to Illinois, Maryland, Pennsylvania, California, Minnesota, New York and Ohio. In December, a norovirus outbreak at a Chipotle outlet in Boston’s Cleveland Circle affected around 136 diners. Though the fast casual chain closed several outlets which were linked to these incidents as a safety measure, the damage was done.

Toward the end of December, the U.S. Centers for Disease Control and Prevention (CDC) announced that it was probing the Colorado-based restaurant chain’s links with a new E. coli outbreak (with a rare DNA fingerprint) in three states, namely, Kansas, North Dakota and Oklahoma.

Though the negative publicity cannot be discounted, what’s more alarming is the fact that as soon as Chipotle reopens a store, it is forced to close another because of new contamination incidents. Ever since the health scares, traffic has been severely hit and the company is still reeling under the impact.