Chipotle Mexican Grill Plunges

Two months ago, I listed 13 stocks investors should avoid. One of the stocks I listed was Chipotle Mexican Grill ($CMG). The stock had been the best-performing stock in the S&P 500 last year. This morning, the company said their earnings beat expectations but sales trailed Wall Street’s forecast.

Slower U.S. consumer spending hurt the chain’s sales with smaller gains as the year proceeded, Chief Financial Officer Jack Hartung said yesterday on an analyst call, where he discussed the Denver-based company’s results. Extreme weather may boost food costs later this year and next, Hartung said.

The stock is down $94 per share this morning, which is a loss of more than 23%. Ouch!

What’s interesting to me is that CMG’s numbers really aren’t that bad. The problem is that the share price was so high that there was no room for error so even a tiny blip can send the stock careening downward.

Interestingly, another stock on the 13 to Avoid list is Starbucks ($SBUX) and that’s down nearly 4% today probably in sympathy with the big loss at Chipotle. (Wall Street assumes problems at one company are shared by everyone in the sector.)

Also on the avoid list are Whole Foods ($WFM) and that’s been down as much as 5.7% today, and Interactive Surgical ($ISRG) which is down $47 per share or 8.6%. ISRG has a familiar story. The earnings were quite good but they didn’t beat expectations by as much as some people expected. Which makes you wonder what the true expectations were. The lesson is that when you’re going for 40 times earnings, you can’t expect much upside surprise.

Posted by on July 20th, 2012 at 10:19 am

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