The troubled times for this stock are far from over. Chipotle Mexican Grill (CMG) is going through a phase of turbulence. Although the 30% year-to-date decline in its stock price might make it seem undervalued and tempting at first glance, we suggest you stay away for now. Don't listen to the optimists! Chipotle is among the worst stocks to own right now.
For starters, since July nearly 500 people across the country have reported getting sick after dining at Chipotle Mexican Grill. Not good. Here's the full story:
Health Hazards and Crisis Mismanagement
Chipotle's early path this year looked very bright and positive.
The company's simple but customizable menu (featuring naturally raised, organic and fresh products) was a massive hit, with sales in excess of $4 billion a year.
And then came the sudden (and rather appalling) news. Reports showed that starting in July, customers who dined at the fast-casual chain got sick from E. coli, Norovirus and Salmonella, creating a fast-rising wave of fear and discontent -- an absolute blow to the gut, in more ways than one.
Chipotle's co-CEO has apologized publicly to people who got sick and said the company would use a stringent food safety program, but the fact is that a company that had prided itself on fresh ingredients and naturally raised meat wasn't paying enough attention to some restaurant basics: cleanliness and food safety.
Customers got seriously ill, too. This Bloomberg article tells the story of an Oregon man who experienced bloody diarrhea for days and whom a doctor warned might suffer kidney failure. Although the man recovered and his kidneys held up, it took almost six weeks for him to get back to normal.
Here's what we predict: Far fewer people will purchase the once-popular tacos, burrito bowls (a burrito without the tortilla) and salads, which were advertised as "prepared using fresh ingredients."
Sure, Chipotle can lower its prices and unload a slew of restorative, high-octane marketing campaigns, but issues like this tend to linger in public memory for a while. That's why Chipotle is among a group of dangerous stocks you should either sell or avoid right now.
Consumer surveys already indicate a significant portion of diners are avoiding Chipotle Mexican Grill. An unscientific online poll at CNBC that is still underway shows that 50% of respondents have stopped eating at Chipotle because of the E. coli outbreak. (You must participate in the poll to see the results so far.) Twenty-four percent of respondents say they have no concerns.
Elsewhere, a recent Reuters/Ipsos poll shows that nearly one-quarter of Americans (23%) who had heard about the E. coli outbreaks said they were eating less often at Chipotle Mexican Grill.