How Chipotle Stock Came Back from the Dead

After Bottoming 18 Months Ago, CMG Stock is at All-Time Highs. Here’s How it Happened.

What does it look like when a popular fast-food chain accidentally poisons over a hundred customers in multiple states? Like this chart of Chipotle stock:Chipotle stock was in a downward spiral for two and a half years.That’s what happened to Chipotle (CMG) following its late-2015 e. Coli outbreak. The fast-food giant was forced to close 43 restaurants in nine states after diners contracted the bacteria-based illness from eating their food. To make matters worse, a few weeks later, 141 Boston College students (including more than half the men’s basketball team) got sick from eating at a Boston Chipotle after contracting a different virus, something called norovirus.

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It was a crippling blow for a company that had built its once-spotless reputation on being the rare fast-food joint that actually cared about the quality and freshness of its offerings. With food sourced from farms instead of factories and served without preservatives, Chipotle’s fast-casual Mexican restaurants spread like wildfire around the country. The food tasted good, it was fast and it was (allegedly) fresh.

But with its claim to fresh food tarnished, people legitimately turned their backs on Chipotle for a time. Sales declined 13% in 2016 and earnings completely crumbled, declining nearly 95%. It was the only year in the last decade that Chipotle’s sales OR earnings have declined.

Anecdotally, the post-poisoning fear was painfully obvious at the Chipotle near my house. Prior to that, every time I went to that Chipotle – no matter the hour – there was always a line either out the door or close to it. After the late-2015 outbreak (and it wasn’t until months after; I was spooked about getting e. Coli too!), I could go smack in the middle of the dinner rush and not have to wait in line. That’s not an exaggeration. It felt like Chipotle was dead.

On Wall Street, Chipotle felt just as dead, as investors bailed on CMG stock as quickly as customers did. CMG plummeted 44% in three weeks, and didn’t hit bottom until February 2018—nearly two and a half years after the e. Coli outbreak.

Chipotle Stock: The Comeback

A common saying in investing is, “Don’t try and catch a falling knife.” And for two full years, Chipotle stock was a falling knife. We certainly weren’t advising trying to catch it!

But if you were brave enough to try it at the eventual bottom, you made a lot of money. Here’s what has happened to CMG since that February 2018 bottom:

It’s basically tripled! Zooming from a low of 255 to new all-time highs of 822 in 18 months, Chipotle’s comeback story is now complete. What triggered it? Customers came back!

After the disastrous 2016, Chipotle’s sales bounced right back in 2017, rising 14% to reach a new annual revenue record. They grew another 8.7% last year, and expanded another 13% in the second quarter of this year. Meanwhile, earnings per share growth zoomed to 94% last quarter.

Should you buy Chipotle stock? Absolutely—though you may want to wait for it to dip back a bit from all-time highs.

But propping up CMG isn’t really my main point here. Rather, it’s that you should never give up on the stock of an otherwise red-hot company based on bad news—even if it’s really bad news. Sure, you can avoid it like an e. Coli-infested burrito until the stock is clearly back in favor—in CMG’s case, that took about two and a half years. Just don’t write it off completely.

The e. Coli outbreak critically wounded Chipotle. But it didn’t kill it.

Keep an eye out for the next good company licking its wounds from a flurry of damaging missteps and unflattering headlines (Boeing (BA), potentially?). If the stock establishes a clear bottom and gets going again, that’s when you should pounce.

Chris Preston

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*This post has been updated from an original version.

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