When all is said and done, I expect Chipotle Mexican Grill (CMG) to come back bigger, stronger and more profitable than ever following its recent food-safety scandal.
As you probably know, CMG recently faced contamination problems that sent dozens of customers to hospitals, forced the chain to shutter numerous restaurants and prompted both a U.S. Centers for Disease Control investigation and a federal criminal probe.
I began accumulating Chipotle shares long ago when they were trading around $250 a share vs. today's $445 or so. Since then, I've written numerous columns about my views on Chipotle's valuation and future potential. Even when the stock was trading above $700 and 40x earnings, I had no intention of selling -- a blasphemous statement for a value investor.
But ultimately, I dumped my entire position at more than $700 a share after news of the food-contamination scare broke. There was no change of heart on my part; I simply relied on analysis and market history.
I believed that whether the problems affected one Chipotle restaurant or many, consumers would pause to assess the situation, which is exactly what happened. But Mr. Market doesn't wait -- he immediately abandons ship whenever problems with a stock arise. So, it made sense to sell my CMG stake when bad news broke for a stock that was trading at more than 40x earnings anyway.
But it appears as though the worst is now behind Chipotle, although whether CMG's price has bottomed out or not remains unknown. Personally, I'm hoping the stock falls to the low $300s so I can buy some again, as I'm low on great investment ideas right now.
Either way, I think Chipotle will eventually emerge very nicely from this episode. As long a company cleans up its act, consumers are generally forgiving. They usually come back if businesses admit to problems and clearly articulate solutions.
Chipotle has done both, and the chain's customers seem uniquely loyal. I've recently visiting a few locations and have seen lines forming again (although I admittedly haven't gone to restaurants near any the affected outlets).
The bottom line: If the overhang from this scandal and the market's continued volatility send CMG shares lower, Chipotle will become a high-quality value investment once again.