Reporter's Notebook
Chipotle: No more Wall Street darling?

Chipotle: No more Wall Street darling?

This post is part of the Reporter’s Notebook blog.

For most of the past nine years, except for a modest break during the recession-hampered year of 2009, restaurant investors could count on a growing stock price at Chipotle Mexican Grill.

The chain’s stock price kept going up long after some observers got tired of mocking its valuation. And many analysts predicted huge things: As the stock surged past $600 a share last year, Janney Capital Markets Analyst Mark Kalinowski suggested the stock could one day reach $1,300.

It won’t do that this year. As we noted last week, investors have been betting against the burrito chain so far in 2015. Its stock is down more than 11 percent this year. It’s down nearly 17 percent since hitting its 52-week high of nearly $728 a share back in February.

Some, in fact, think the stock could go down even further. The financial publication Barron’s said over the weekend that Chipotle stock could fall another 15 percent to 20 percent if growth doesn’t reverse course soon. The stock could— gasp! — fall below $500 per share.

To be sure, nothing lasts forever, and that includes Chipotle’s stock price, which has been on an upward trajectory since January 2006, when it debuted on Wall Street at $22 a share and doubled to $44 on its first day of trading. Even after the recent decline, if you invested $1,000 at the end of that first day, you’d have nearly $14,000 right now. That’s not a bad payoff.

Still, for as much as Wall Street might have lost some of its love for Chipotle, consumers sure haven’t. Same-store sales rose more than 10 percent in the first quarter. And that was the quarter that Chipotle took pork off of its menu at many stores after it suspended a supplier.

Last year, the company’s same-store sales rose nearly 17 percent. It now boasts some of the strongest average unit volumes in the industry. Revenue grew nearly 28 percent last year.

The company is also adding nearly 200 restaurants a year and has yet to fully tape into the lucrative international market.

That kind of immense, sustained success is almost impossible to find among publicly traded restaurant chains.

Part of the problem is expectations. Chipotle suggested after its first quarter earnings report that its same-store sales would be in the mid-single digits, rather than the double digits the chain has enjoyed of late.

And revenue growth did slow, to just over 20 percent in the first quarter. Stock prices are based on expectations, and lower expectations generally yield lower prices.

Still, analysts remain relatively bullish on the stock, even now: Back in May, Miller Tabak + Co Analyst Stephen Anderson upgraded Chipotle to Buy after suggesting that sales growth, even in the mid-single digits, combined with lower food costs should yield strong earnings growth.

He also suggested that the company’s cash position could help it buy back shares — especially after the recent pullback in share price.

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