NEW YORK (TheStreet) -- As a value investor, there was a point when I would have considered a 25% to 30% drop on a stock due to an earnings miss an overreaction. In fact, it would signal that it just might be time for me to buy because there is fear on the street.However, when it becomes clear that the stock is yet facing some valuation challenges after the fact -- particularly with the metrics that matter -- it forces me to wonder if that reaction was drastic enough. This scenario seems to be especially relevant to Chipotle Mexican Grill ( CMG) after having dropped from $404 per share just prior to its earnings report to just slightly over $300 in what seems like a blink of an eye. While its came as a surprise to most, it should not have been the bombshell that many have made it out to be. If one took time to carefully study the stock, it could have been seen a mile away -- or at least a couple of days ahead of the report. The questions on investors' minds are, when will the bleeding stop and at what point does the stock become a buy? Before we try to answer, let's take a look at what caused the indigestion.
According to FactSet and a recent poll of analysts, expectations were for the company to earn $2.30 per share on revenue of $704.8 million. If you are keeping score at home, on Wall Street this is called a miss -- causing many upset stomachs. Another concern during the quarter was that the company's comps appeared to have slowed -- breaking its string of double-digit comps that has lasted almost two years. This was my biggest concern when I recently issued the sell recommendation ahead of its report. What's more, management did very little to assure investors that this was a one-quarter trip-up -- suggesting comps for Q3 would likely arrive at the low single digit range.
Interestingly, the word "value" comes in to play here not only for the advantages presented by having a "value menu" in tough economic times, but also because, relative to its peers, its stock continues to trade significantly undervalued levels.