"Yo, will Chipotle's stock ever stop falling -- I might want to buy some."
Yeah, so, that was a text from my younger brother, a long-time fan of Chipotle (CMG) burritos, around 6:00 p.m. ET on Monday. Ironically, the text came in just as news crossed of Boston College students reportedly getting sick after eating at Chipotle and as I walked past an empty New York City Chipotle location.
And now it looks as if the hungry Boston College students claiming to have gotten ill from eating at Chipotle were right to trust their gut. It "looks like norovirus isolated to one restaurant" a company spokesman is quoted as saying to Reuters on the incident. Norovirus is a virus that could be spread to others by individuals who've been infected. Shares of Chipotle fell slightly on the news, and are down about 1% on Tuesday's session.
The unfolding E. coli scare sure has emptied Chipotle locations during peak lunch and dinner times. Reminds me of heading to a Sears (SHLD) store on Black Friday.
Nevertheless, this Chipotle E. coli outbreak is becoming a true never-ending headache for the burrito joint. The consumer outrage is building. I see it and feel it when scrolling Twitter. Long-term investors in Chipotle still believe in the story, but are getting worried as the fast money dumps the stock in light of horrible quarter-to-date same-store sales. Personally, I have friends asking me if I want their Chipotle gift cards, knowing full well that it's hard for me to resist a salad bowl with extra guac.
However, something weird happened as I walked past that Chipotle location last night. I was afraid to walk in and get that salad bowl. I was unsure if I, too, was going to fall ill despite knowing full well the steps Chipotle is taking to shore up its supply chain and the passion for the brand the co-CEOs continue to wield. Certainly, I can't afford to be sick during the holiday season.
I didn't go into Chipotle, which is quite telling as to the mood sweeping across the country about a brand that has long vowed to do fast food better. Suddenly, in spite of using ingredients we can't even pronounce, eating at McDonald's (MCD) seems to be a safer option than Chipotle. Go figure.
Peak hours are eerily quiet at many Chipotle locations. Source: Brian Sozzi
Meanwhile, investors are chomping at the bit to get in at the bottom in Chipotle's stock. They have seen it rise by meteoric proportions since its IPO (debut price $45) in 2006, and want to be involved before the inventible bounce-back (it will happen).
To those salivating, here is a healthy checklist of things to review before considering jumping into Chipotle. Keep in mind that it's disturbing that the number of cases and states reporting E. coli at Chipotle continues to rise. It suggests the company has not found the root cause of the problem. Further, it's a negative that shares of Chipotle continue to react negatively to more breaking E. coli news stories, indicating the market has not yet priced in a brutal first half of 2016 in terms of same-store sales and expense de-leverage.
Chipotle's shares still have a significant premium baked into them, and the market appears to have an appetite to unwind that as new information surfaces.
1. Stability comes to the E. coli-related news flow. I know it's tempting to wade into the waters here on a beaten-up high-growth company that had made a ton of a people filthy stinking rich. But the market is saying that is not the correct maneuver. Wait and see if Chipotle can make it a week without any new E. coli cases being reported (they seem to get reported by the CDC on Friday afternoons). Then make a note, and wait another week. If Chipotle could go at least two weeks without any more reported outbreaks, it would be the first sign the situation is started to come under control.
2. Co-founder and CEO Steven Ells makes a TV/video appearance. So far, Chipotle has only exposed its founder to statements in press releases detailing the actions the company is taking to improve its restaurant procedures and supply. Given its plunging sales and damaged reputation, I think it's time Chipotle considers putting Ells on TV or video to reassure customers. Ells doesn't have to become a Wendy's (WEN) Dave Thomas pitchman here, but it would be nice to see the founder back his baby and communicate to the public that Chipotle should be trusted. McDonald's relatively new CEO Steve Easterbrook taped a video on analyst day earlier this year, detailing problems his team was seeking to correct. In hindsight, it helped to restore some lost trust among franchisees and the investor community.
And should Ells make that appearance, it would be a sign the company is turning the corner. No company is going to put its CEO in a very public spot if it didn't have the confidence it was the right time to so do.
3. A national promotional plan goes live. The reality is that Chipotle is going to have to regain the trust of its customers who today feel unsure about visiting. To get them through the door, what better measure than a profit-busting, serious promotional plan. Maybe something along the lines of "Our food is safe, come have a day of free lunch and dinner at Chipotle." While this would indeed hurt profits, it would send an important signal to investors that yes, Chipotle has gotten the situation under control. No restaurant company would create a national promotion if they feared customers coming in for free food were likely to get sick. That would be a disaster for the brand.
4. You want to eat at Chipotle again. Look inward, investor, when assessing a potential investment in Chipotle. I am sure you have eaten there before and enjoyed the food -- it's tasty, and made fast. For some, I am certain visiting Chipotle at least two to three times a month had become a habit. However, if you have not visited in the past month due to the E. coli news, remember many other once-faithful customers are avoiding the chain as well.
Chances are when you feel confident again to eat that burrito for lunch, others are feeling the same way, which would be a good sign from an investment standpoint.
Buy what you eat ...
Updated at 11:10 a.m. ET to confirm the norovirus outbreak in Boston and to add the latest stock price.