Ask Matt: Is Chipotle a buying opportunity?
Q: Is Chipotle a buying opportunity?
A: Serious health concerns about Chipotle are fueling a massive collapse in the stock. The company has the financial power to withstand the strain, but most investors won't have the stomach for the volatility.
Shares of Chipotle are down more than 20% this year to roughly $500 a share as health concerns pile up. The latest problem to hit Chipotle is the Centers for Disease Control investigating another E. coli outbreak connected with the food chain. Analysts are starting to treat these quality issues as a real concern. The average 18-month price target on Chipotle by analysts has been slashed by 18% to $576.32 from just a month ago, says S&P Capital IQ. Expectations for profit are also being cut. Analysts now think the company will post adjusted profit per share of $16.65 in fiscal 2016, down 18% from what was expected a month ago.
The company has the financial resources to endure this biggest challenge to its survival and reputation in its 22-year history. Chipotle is sitting on roughly $1 billion in cash and short-term investments - and has no long-term debt. But with a P-E that's 50% higher than the market, this isn't going to be a pleasant time for investors for quite some time.
Paste BN markets reporter Matt Krantz answers a different reader question every weekday. To submit a question, e-mail Matt at mkrantz@usatoday.com or on Twitter @mattkrantz.
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