NEW YORK (TheStreet) -- Chipotle Mexican Grill (CMG) closed down 0.73% to $412.96 on Friday after a civil lawsuit was filed against the company in the U.S. District Court for the Southern District of New York.
The lawsuit alleges that the restaurant company mislead investors about its food safety controls, Reuters reports. After multiple outbreaks of E. coli linked to Chipotle were reported across the country, Chipotle stock has fallen about 39% in the past year.
The lawsuit seeks damages on behalf of investors who acquired shares of Chipotle between February 2015 and January 2016.
"Quality controls were inadequate to safeguard consumer and employee health," the lawsuit states, according to Reuters.
Earlier this week, Chipotle announced that same-store sales plunged by 14.6% during the 2015 fourth quarter after the E. coli and norovirus outbreaks.
Separately, recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate CHIPOTLE MEXICAN GRILL INC as a Hold with a ratings score of C+. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share and increase in net income. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, poor profit margins and weak operating cash flow.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The revenue growth came in higher than the industry average of 1.0%. 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. This trend suggests that the performance of the business is improving. 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 ($15.47 versus $14.13).
- 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.
- Net operating cash flow has declined marginally to $187.43 million or 0.99% when compared to the same quarter last year. In conjunction, when comparing current results to the industry average, CHIPOTLE MEXICAN GRILL INC has marginally lower results.
- CMG's stock share price has done very poorly compared to where it was a year ago: Despite any rallies, the net result is that it is down by 32.75%, which is also worse that the performance of the S&P 500 Index. Investors have so far failed to pay much attention to the earnings improvements the company has managed to achieve over the last quarter. Although its share price is down sharply from a year ago, do not assume that it can now be tagged as cheap and attractive. The reality is that, based on its current price in relation to its earnings, CMG is still more expensive than most of the other companies in its industry.
- You can view the full analysis from the report here: CMG