Here’s why the Chipotle Mexican Grill stock price is falling apart

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on Jul 10, 2024
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  • Chipotle Mexican Grill share price has crashed by over 17% from its YTD high.
  • Other restaurant companies like Starbucks, Jack in the Box, and McDonald’s have retreated.
  • There are concerns about the company’s growth trajectory and valuation.

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Chipotle Mexican Grill’s (NYSE: CMG) stock price is falling apart after having one of the most spectacular performances in the past few years. It is nearing a bear market as it dropped by more than 17% from its highest point this year. It has now plunged to its lowest point this year.

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Restaurant stocks are falling

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The first main reason why Chipotle’s stock is tumbling is that it is trading in sync with other restaurant companies. 

On Tuesday, I wrote that the McDonald’s and Starbucks stocks have dropped sharply in the past few months.

Other companies in the industry have dropped. CAVA Group has fallen by almost 9% from its highest point this month. Similarly, Jack In The Box has nosedived to $48, down from the year-to-date high of $84.90. Yum Brands stock has fallen by more than 11%.

In most cases, companies in the same industry tends to move in sync. Also, the drop is happening as concerns about the economy continues. The unemployment rate has ticked up to 4.1% while wage growth has flattened. 

Also, analysts have started to predict that the industry is not growing as fast as it used to a few quarters ago. For example, a recent data by Baird showed that casual dining comparable sales dropped by 6% in the most recent quarter.

Valuation concerns remain

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The other reason why the Chipotle stock price has plunged is that there are valuation concerns, as I warned in my last article. Chipotle trades at one of the highest valuation multiples in the industry.

Data shows that the company has a forward P/E ratio of 53.6, which is higher than the sector median of 15. Its EV to EBITDA multiple stands at 36, which is higher than the median of 9.40.

These valuation metrics are quite high considering that the company’s forward revenue growth is 14%. It has a forward EBITDA growth of 23.3%, higher than the sector median of 3.15%. 

The valuation metrics are comparable to those of Nvidia, which has a forward P/E ratio of 50 while its revenue is growing at over 80%. 

CMG stock retreats ahead of earnings

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The Chipotle Mexican Grill stock price has also dropped as traders position themselves for the upcoming earnings, which are scheduled for July 24th. Analysts expect the company’s revenue to come in at $2.93 billion, a 16% increase from the same period in 2023. 

For the year, analysts expect that its revenue will rise by 15.1% to $11.3 billion. They also expect that its revenue will rise by 13.7% to $12.9 billion.

Analysts believe that some restaurant chains will publish weak financial results. In a statement, a Keybanc analyst said:

“We believe several brands within our coverage universe are at risk of missing consensus same-store sales forecasts for the 2Q.”

Chipotle also dived after its CFO, Jack Hartung’s resignation, which will happen in 2025. In most cases, stocks tend to retreat after an important executivesigns. In a statement, Brian Niccol, the CEO said:

“I’m also pleased to have Adam Rymer succeed Jack as CFO which is a testament to our strong talent bench and thoughtful succession planning. I am confident he is the right leader to take on this important role”

Chipotle stock price forecast

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CMG chart by TradingView

The CMG stock price also dived for technical reasons since it formed a small evening star chart pattern on June 18th. In most cases, this is one of the most popular bearish candlestick patterns in the market.

The stock has also dropped below the important support level at $60.7, its lowest swing on June 3rd. It has moved below the 23.6% Fibonacci Retracement level. 

Also, the Relative Strength Index (RSI) and other oscillators have pointed downwards. Therefore, the stock will likely continue falling as sellers target the 50% retracement point at $52. It will then bounce back ahead or after its earnings since investors have lowered their revenue and growth expectations.

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