Chipotle (CMG) Stock Just Passed a Big Test

Chipolte (CMG) prices traded through $600 yesterday and rebounded to close above the big round number.
By Bruce Kamich ,

NEW YORK (TheStreet) --Recently, we looked for Chipotle (CMG) - Get Report to retest support around $600. Prices traded through $600 yesterday and rebounded to close above the big round number. Today, we are seeing some follow-through buying.

This chart of CMG, above, shows us two things. First, the tumble lower the past four weeks and the heavy volume of trading recently suggests that some traders threw in the towel while others may have bought. Second, note the previous area of support around $600 from June and early July.

In this candlestick chart of CMG, above, we can see a hammer formation Friday as prices declined below $600 and rallied to close higher than the opening, giving us the "white real body" on the pattern (a white real body happens when the close is higher than the opening). Candlesticks generate fast reversals on the chart. CMG may not be entirely out of the woods, as another retest of the $600 level could happen at any time, but it looks like CMG has passed its first test of the $600 support level.

TheStreet Ratings team rates CHIPOTLE MEXICAN GRILL INC as a Buy with a ratings score of B+. TheStreet Ratings Team has this to say about their recommendation:

We rate CHIPOTLE MEXICAN GRILL INC (CMG) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income and notable return on equity. We feel its strengths outweigh the fact that the company has had lackluster performance in the stock itself.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth came in higher than the industry average of 1.5%. Since the same quarter one year prior, revenues rose by 12.2%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • CHIPOTLE MEXICAN GRILL INC has improved earnings per share by 10.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, CHIPOTLE MEXICAN GRILL INC increased its bottom line by earning $14.13 versus $10.46 in the prior year. This year, the market expects an improvement in earnings ($17.31 versus $14.13).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Hotels, Restaurants & Leisure industry average. The net income increased by 10.8% when compared to the same quarter one year prior, going from $130.80 million to $144.88 million.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Hotels, Restaurants & Leisure industry and the overall market on the basis of return on equity, CHIPOTLE MEXICAN GRILL INC has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • The gross profit margin for CHIPOTLE MEXICAN GRILL INC is currently lower than what is desirable, coming in at 28.31%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 11.90% trails that of the industry average.
  • You can view the full analysis from the report here: CMG

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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