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Revenue Miss Masked This Appetizing Buy


Chipotle is at least slightly undervalued, and barring any other negative company news, consider entering or increasing your position in this company as the technical signals turn positive.

MINYANVILLE ORIGINAL The most recent quarter brought on a stock price slaughter at Chipotle (CMG) that it hadn't seen since 2009 and it was mainly due to a slowdown in same store sales. [Editor's note: CMG was last traded at $296.65. It hit an all-time high of $440 mid-April.]

Much to the dismay of investors, Chipotle only grew at a rate of 8% for same store sales (versus the analyst expectations of 10%). Adding fuel to the selling fire was the quote from Chipotle's CFO who stated in a conference call, "We're seeing a slowdown. I mean, there is no other way around it… It's not a significant slowdown, but it is a slowdown."

Some have postulated that the slowdown was brought on by Taco Bell's (YUM) recent entry into the space with its new "Cantina" products. However, during the most recent quarter reported, the only product that launched at Taco Bell was the Dorito Los Tacos which I think I can safely assume is not a strong competitor to Chipotles' fresh, locally-sourced (and higher priced) fare. Unfortunately, this recent drop was from other competitors: Either national chains like Panera (PNRA) (which are still seeing an increase in same store sales), or other local venues.

One may ask why we suggest buying Chipotle before the effects of Taco Bell's Cantina menu are realized. The answer is twofold:

1. According to multiple online food critiques, Taco Bell's Cantina products are still sub-par compared with Chipotle's offerings. Although Taco Bell's premium products are still cheaper than Chipotles, a quick web search reveals that most people who compare the Cantina menu against Chipotle are not quite satisfied with the new entrant into the space. In some reviews of the Cantina menu, a few adjectives included words like "slimey" and "gluteny," along with a few other less savory descriptions.

2. Consumers don't just buy food. They buy an experience. Most people thinking about what they want to eat include other factors into their decision, including pricing, food quality, organic/sustainable products, convenience, and overall user experience. I find it hard to believe that consumers will be willing to sacrifice the overall experience of Chipotle to save a few dollars and eat at Taco Bell. As an example, if you were going on an informal lunch date, which restaurant are you more likely to choose?


This investment thesis was generated using's "Oversold" scan. A screenshot of Chipotle's profile can be referenced below.

As can be referenced in the lower left of the graphic, the recommendation for the time being is to wait for Chipotle to change ratings before selling or adding to this company. Its overall rating is a strong sell, from a technical perspective, but as can be seen in the lower right of the graphic, Chipotle is in an oversold status, meaning that we could see an uptick in the stock price as it reverts more towards its previous level.

Click to enlarge

In this case, we can reasonably assume that the market overreacted to the bad news and that we should see a reversal soon.

As for fundamentals, Chipotle's valuation is weighted heavily by the future growth story. Even after the less-than-stellar news, analysts' median price target is still at $400, and analysts' estimates concur. Even if accounting for a slower growth rate and diminishing EBITDA margins, Chipotle is still slightly undervalued at this time.

Given the fact that Chipotle is at least slightly undervalued, and barring any other negative company news, consider entering or increasing your position in this company as the technical signals turn positive.

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No positions in stocks mentioned.
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