These Stocks Plunged 10% in a Day. Is Chipotle Next?

NEW YORK (TheStreet) --The list of stock price losers seemed longer and uglier than usual on Wednesday.

First, truck manufacturer Cummins ( CMI) issued dismal earnings and guidance on Tuesday.

It's stock was hammered and fell from its July 9 closing price of $95.55 to an intraday low of $85.08 on July 10. CMI recovered that day to close at $86.91, a 9% closing price correction from the previous day's closing price. But Wednesday saw CMI move down another 3.9% on over triple the average daily volume.

That's nearly a 13% implosion in two trading sessions. Why did such a massacre occur?

For starters, Cummins and its CEO took the market by surprise midway through a trading session. The stock market doesn't take kindly to negative surprises.

What the CEO of Cummins told investors was chilling. In essence, he blamed the strong dollar and weaker demand in emerging markets for hurting demand for its products. He also said that U.S. orders for the company's trucks and power generation business had soured, and that expected growth in China, India and Brazil was lower than anticipated. For the remainder of 2012, CMI said it expects full-year revenue to be flat compared to 2011.

So the slaughter of CMI shares came as a direct result of not only poor quarterly performance, but drastically reduced guidance going forward. Earlier this year, Cummins had predicted full-year revenue growth of 10% versus 2011 annual revenues of $18 billion. Second-quarter revenue was guided downward to $4.45 billion. That's a full 10% below what analysts had been expecting.

Even raising the dividend couldn't stop the CMI rout. Cummins' board announced a whopping 25% hike in its quarterly dividend to 50 cents a share. This brings the annual dividend yield, based on a price of $83.45, up to around 2.5%.

From a technical point of view, CMI may be on the way to testing its October 4, 2011 low of $79.53 (the current 52-week low), unless of course the Federal Reserve sprinkles the stock market with unexpected glad tidings that will undoubtedly fuel an inevitable rally ahead.

Wednesday's horror show also included a 10% correction of bellwether gold stock Goldcorp ( GG). No one saw this coming, and the stock closed at $33.17, down almost 10% from Tuesday's closing price.

Again the culprit was unexpected bad news. The Canadian mining company lowered its 2012 production guidance because of operational problems at two mines.

The Vancouver, B.C., based precious metals producer cut its full-year gold production forecast Tuesday to a range between 2.35 million ounces and 2.45 million ounces. That compared with its previous 2012 forecast of 2.6 million ounces. Goldcorp also predicted it would produce between 30 million and 31 million ounces of silver in 2012, compared with its previous guidance of 34 million ounces. Its copper forecast was unchanged at 110 million pounds.

GG also attributed the changes to an inadequate water supply that limited plant operations in June at their Penasquito mine near Mazapil in north-central Mexico. The problem will impact the mine throughout the second half of the year.

Here's the one-year chart for GG showing how close it is to its 52-week low. GG Chart GG data by YCharts

Perhaps the biggest loser Wednesday was HHGregg ( HGG). The appliance and electronics retailer cut its full-year forecast and posted first-quarter guidance well below Wall Street expectations. The stock plummeted 36% on heavy volume.

So enough horror stories for one article. How about a buoyant stock like Chipotle Mexican Grill ( CMG)?

CMG has been a highflyer among restaurant and fast-food stocks for some time. The five-year chart below shows its price trajectory compared to its price-to-sales ratio. CMG Price / Sales Ratio Chart CMG Price / Sales Ratio data by YCharts

For those of you who own CMG, which is well off its 52-week high of $442, I'm yelling "watch out below," because it still looks ridiculously overpriced.

Why would anyone want to own a stock that is selling at a price-earnings-to-growth ratio of almost 2, based on five-year expectations, and is also selling for five times its sales?

Granted they make wonderful Mexican fare, but CMG is trading at a trailing price-to-earnings ratio of 52, and a jaw-dropping forward P/E of over 34.

Do shareholders know something that I don't know when it comes to CMG? Is this a stock that is really worth 34 times its upcoming fiscal year's earnings (ending Dec. 31, 2013)? I don't think so!

Who in their right mind would pay that for a fast-food restaurant when Apple ( AAPL) is selling for a little over 11 times forward earnings (fiscal year ending September 24, 2013)?

Not even Panera Bread ( PNRA) is so richly valued. Here's the five-year chart with its price and PSR. PNRA Price / Sales Ratio Chart PNRA Price / Sales Ratio data by YCharts

Yes I've heard the theory that same-store-sales growth is what justifies the CMG share price and nosebleed high P/E ratios. I'm not buying that reasoning.

Like other overpriced, unreasonably highfliers -- remember First Solar ( FSLR), which in the past 52-weeks traded at $127? -- it wouldn't surprise me if one of these days CMG comes down to earth and sells closer to $200 a share.

What might trigger such a fall? How about a negative surprise like lowering its earnings guidance or missing its next quarterly earnings projections? I'm not saying it will happen, but caveat emptor!

At the time of the publication, the author was long GG.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

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