Data analysis firm M Science recently claimed in a widely cited report that Chipotle (NYSE:CMG) will “easily beat” the consensus estimate for Q1 comparable sales growth. The stock reacted only slightly to this prognostication, which is a good thing for investors. I still think that Chipotle will prove to be a massive success in the coming years, so I hope that share prices stay depressed for as long as possible. But nearly two years have passed since the food poisoning crisis hit the mainstream, and I believe that time is running out for investors to get in on the stock at a bargain rate. As past scandals at other chains have proven, the fear of food poisoning eventually fades and consumers return to the restaurant as if nothing had happened. In Chipotle’s case, I think some investors definitely displayed a certain amount of schadenfreude upon seeing the trendy, millennial-focused chain stumble. Indeed, my previous Chipotle article on Seeking Alpha generated several hilarious insults lobbed in my direction, and I really am puzzled as to why there are so many people out there who cheer for the chain’s demise.
In the meantime I have continued to accumulate Chipotle stock. Shares of the chain now account for over 50 percent of my personal portfolio’s value. On a related note, I just finished reading Starbucks (NASDAQ:SBUX) CEO Howard Schultz’s 1997 book Pour Your Heart Into It, where he made the prescient claim that the company was still in its early stages. Even though Starbucks was already a nationally-known brand, shares were only worth about $2 apiece (split-adjusted). Today’s stock price? $56.81 a share. That is a 3,000 percent gain over 20 years. The point here is that anyone could have picked up Schultz’s book, visited a Starbucks store, and recognized the massive potential.
To be clear, I think Chipotle is a bit further along in the growth process than Starbucks in 1997, but I can easily see the chain becoming a $50 billion company over the next 10 or 15 years. As I discuss in my previous Chipotle article, the company could easily double in size within the United States. Its international presence is virtually zero, and global expansion would likely double the size yet again.
One positive outcome of the safety scandal is that it shined a light on a number of unrelated managerial and operational issues. When the chain was riding high, nobody cared about restaurant cleanliness, long lines, or the dreadful online ordering system. In addition to doubling down on food safety, the company is now taking concrete steps to finally address problems that have long rankled customers. Several board members recently announced that they will stand down, and co-CEO Monty Moran resigned to allow founder Steve Ells to run the company with a singular vision. Chipotle also shut down its ShopHouse Asian Kitchen startup chain, despite enthusiastic reviews. In my view this was a wise move, since management’s focus should really be on stabilizing and expanding the core Chipotle brand. However, Ells is still clinging to his Tasty Made burger concept. Like other foodies, apparently the Chipotle founder has become enamored of In-N-Out’s model and thinks it could work elsewhere. Maybe so, but I hope someone else in management is handling this vision.
Overall, though, I feel pretty satisfied with how this episode is being handled by the company. I look forward to boasting to my friends in the year 2046 about how I bought Chipotle shares back in 2016.
PS: For those interested, there is a lively discussion in the comments section over at Seeking Alpha, where this article was first posted.