Last week, burrito-monger Chipotle could do no wrong; now it’s in danger of becoming a fast food has-been, a victim of competition spawned by its own, spectacular success. Or so we are led to believe by a Wall Street Journal article that ran Monday under the headline Chipotle Reaches Awkward Age (“Once a renegade, burrito chain faces slower sales growth and attacks by critics”). Lo, two days later, the company is out with punk Q3 earning, causing the stock to plunge by $59, or 8.5%, intraday. A coincidence? Yeah, sure. On Wall Street, there are no coincidences. The timing of articles such as this reflects the give-and-take between corporate publicists and their contacts in the news media. I don’t mean to suggest there was collusion — only that the negative story on Chipotle probably took shape in the mind of some financial schemer a month or two ago, whereupon he shared it with a WSJ business reporter.
The result was a one-two punch that caused the stock to plunge steeply this morning (the lows were hit around 7 a.m., two-and-a-half hours before the NYSE opening). The beneficiaries of this deftly orchestrated shakedown were mainly CMG’s institutional sponsors, who added millions of shares to their portfolios at fire sale prices. A day earlier, they’d paid as much as $722 a share; on Wednesday, the same stock came to them for as little as $645. Of course, nothing substantive had changed — only the perceptions of investors too naive to understand that they were being played.
We’ll let price action in the stock in the coming weeks and months determine whether my interpretation of CMG’ dive is correct. If so, we should see the stock rebound sharply, hitting new record highs. It’s the same world-beating company it was before earnings news, right? They are smart guys, and they’ll figure out how to get earnings back on track quickly. Earnings growth will not be as dynamic as it was when Chipotle was still an upstart. But as long as it is consistent and reliable, institutional investors will flock to the stock, and stick with it. One caveat: All bets are off if a bear market intercedes.