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Chipotle Back At $300 Area: Buy, Sell Or Hold?

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Chipotle Back At $300 Area: Buy, Sell Or Hold?
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Chipotle Mexican Grill, Inc. (NYSE: CMG) is again on the verge of a major technical breakdown.

Chipotle stock peaked at $758.61 back in mid-2015 before a series of food safety outbreaks sent the company’s sales and share price tumbling. After finding support at $352 in late 2016, Chipotle bulls were hoping that an early 2017 surge to $500 meant the Chipotle story was back on track. Unfortunately, the early-year rally turned out to be a head fake, as persistently sluggish sales and a norovirus scare in Virginia sent the stock plunging as low as $295.11, its lowest level in more than four years.

Chipotle's Queso roll-out has had a luke-warm reception among customers, who have complained about its texture and taste.

Wall Street also seems to have very little appetite for Chipotle these days, although the stock did receive three upgrades from Jefferies, Stephens and Standpoint Research in July and August. But while the firms are no longer bearish on the stock, their Hold and Market Perform ratings indicate they still aren't rushing in to buy at these levels.

One famous Chipotle investor that has taken quite a beating in the past year is Pershing Square's Bill Ackman. According to Pershing's most recent filings, Pershing holds a roughly $1.2 billion stake in Chipotle, a position that was taken at a price of around $416 per share back in September 2016.

On The Bright Side

The good news for Chipotle bulls is that the stock has already found support at this level several times since dipping to $296.00 in August. In fact, since mid-August, Chipotle has been range-bound between around $295 and $320. Chipotle closed Monday’s session at $301.81, so the stock may continue to consolidate inside this narrow range indicated in the chart below.

The key level to watch is $295. If Chipotle stock bounces at or near $295, it could be a strong buying point and a sign it’s heading back to test $320 resistance in coming weeks. However, a meaningful breakdown below $285 would be a very bearish sign and indicate significant downside ahead.

Related Link: Queso Performance For Chipotle Said To Be 'Underwhelming'

Fundamentals Simply Aren’t There

Unfortunately for Chipotle investors, even after the stock’s major sell-off, there is very little fundamental support for the share price. Chipotle’s stock still trades at a forward price-to-earnings ratio of 28.6. If the company hasn’t been able to gain its footing during one of the strongest bull markets in history, it will be extremely difficult for it to orchestrate a turnaround if the economy and the market slow down at some point in the years ahead.

Joel Elconin contributed to this story.

Related Link: 'Grainy' Or Not, Queso Might Be The Distraction Chipotle Needs

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Image Credit: Miosotis Jade (Own work), via Wikimedia Commons

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