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Time to Buy Chipotle (NYSE: CMG)?

Written By Jeff Siegel

Posted March 17, 2016

cmgdoorIt was one of my best picks ever.

A relatively small fast food chain that offered burritos, tacos, and the opportunity to eat fast food that was made with real ingredients.

At the time, this was a fairly new concept. After all, the point of fast food was not quality – it was speed and price. Cheap food, fast. That’s how companies like McDonalds (NYSE: MCD), Burger King, and Taco Bell (NYSE: YUM), built billion-dollar empires.

But this new fast food chain was something different.

I’m not saying the quality of the food was in line with the kind of food I typically eat. After all, I only buy my meat and seasonal vegetables from local farmers. All of my dairy products start out as fresh milk from grass-fed cows.

If you’re a regular reader of these pages, you know I take this stuff very seriously. I’m actually quite passionate about food, and more importantly, how and where it’s produced.

That being said, every now and then I find myself in a situation where my options are limited to convenience stores and fast food restaurants. And it’s in those situations I’m thankful for Chipotle (NYSE: CMG).

A Sweet Score

I was an early investor in Chipotle.

I was familiar with the company and how it operated. I was already a customer. And when I heard the company was about to go public, I didn’t hesitate.

I bought Chipotle for about $47 a share.

In 2010, I unloaded those shares after the price had crossed the $260 level. I walked away with a 467% gain.


Truth is, had the stock’s meteoric rise had not been so, well, meteoric, I probably would’ve held out longer. But it’s not often I’m willing to let such a huge score exist only on paper.

After I sold, the stock climbed further, and the greedy bastard in me squirmed as I questioned my decision to sell. Chipotle ultimately hit a high of more than $750 a share. Check it out …


In any event, Chipotle really did have one hell of a run until last year when an E. coli outbreak hit Chipotle restaurants in Washington State and Oregon.

The E. coli Blues

Nothing will kill a restaurant chain’s value faster than an outbreak of E. coli. Take a look at what happened to the stock after the initial outbreak was announced.


You know the rule: Never get emotional about investing.

And truth be told, I don’t let emotions dictate my investment decisions. But how could I not get somewhat emotional about a fast food company that had the balls to introduce the idea of sustainability, transparency, and social responsibility to an industry that has long been the antithesis of such things.

Sure, companies like McDonalds and Taco Bell donate to a lot of great causes, and certainly those companies don’t shy away from opportunities promote good will in local communities. But when we talk about social responsibility, the environment, and community relations, Chipotle set the bar much, much higher.

The company has made real efforts to partner with farmers and ranchers that share the company’s philosophy of real food and sustainability.

Chipotle has gone out of its way to source its meat from suppliers that don’t treat their animals like soulless widgets destined to live their lives in gestation crates while being fed a steady diet of hormones, antibiotics, and their own excrement.

Chipotle was also the first national restaurant chain to voluntarily disclose the presence of GMOs in its food. And last year, the company began a transition to serving food made with only non-GMO ingredients.

Of course, Chipotle isn’t perfect. At least in the eyes of those of us who take social responsibility seriously. But when we do a comparison to other national fast food chains, Chipotle definitely scores much higher.

No Carnitas for You!

In fact, in 2015 I was very impressed after the company announced it would stop serving carnitas in most of its restaurants after discovering that its main pork supplier was violating some of Chipotle’s core animal welfare standards.

While it would’ve been very easy to keep this under wraps, the company actually acknowledged what had happened, and instead of compromising its animal welfare standards in an effort to maintain a steady supply of pork, it suspended all of its purchases from that supplier, temporarily took the carnitas off its menus, and went on the hunt for a new supplier that agreed to meet the very high standards Chipotle had set.

I can’t imagine many other fast food chains risking the bad PR and supply shortages involved in such a decision. But not only did Chipotle stick to its guns, the “bad” news really didn’t have much of an effect on the stock. Certainly investors were pleased. And customers, many of whom share Chipotle’s philosophy on animal welfare, were not discouraged. Revenue continued to climb, and new store openings were not significantly impacted.

Of course, there is a big difference between a shortage of pork and an E. coli scare. And while I do commend Chipotle for being pro-active following the scare, I also knew that the stock was about to get slammed once I heard the news.

News of the outbreak didn’t take long to find its way on to every media outlet. From the corporate news giants to local blogs, Chipotle had a serious problem. And this problem, which the company has been quick in its attempts to rectify, will not go gently into that good night – despite the fact that the E. coli outbreak is over.

I suspect Chipotle is going to struggle throughout the rest of this year as it tries desperately to win back customers who have been scared off. The company’s even gone so far as to send out coupons for free food, just to put the asses back in the seats.

While I think this will bring some customers back, the only thing that’s really going to get Chipotle back on track is time. Folks are going to have to feel safe eating Chipotle again. And I do think that’ll happen. But as an investor, I can’t let my emotions dictate my actions. So while some have seen the recent sell-off as an opportunity to buy, I’m going to wait it out a bit longer. I don’t think the selling is done yet.

That being said, last week I went to Chipotle for lunch and noticed something very reassuring: A long line of customers and not an empty seat in the place.

Rest assured, Chipotle will come back. And as it continues to re-build after this incident, I’ll continue to stick to Chipotle for my occasional fast-food outing.