Chipotle Mexican Grill (NYSE:CMG) is up a whopping 95% since the start of the year. That’s a significant turnaround from where CMG stock was in late 2015. A spate of food poisoning issues hit the company over the course of the previous two years and by 2016, consumers lost their confidence that the company was going to be able to right itself.
So, we get back to the initial question. Given its return to glory, is the stock overbought here? I mean, it’s now trading with a trailing price-to-earnings ratio of 93, so it isn’t exactly cheap at these levels. My answer is an unequivocal “yes.”
My Portfolio Grader has CMG stock rated an “A” here. We’ve already made more than 20% with it in my Growth Investor model portfolio.
And there’s plenty of reasons to still like the stock, or, if you haven’t gotten into it yet, to get in now.
What’s in Store for CMG Stock?
First, Chipotle Mexican Grill has certainly rebuilt its reputation. One of the biggest challenges management had during the health and safety issues came from dismissing concerns during analyst calls. It was more interested in framing problems as isolated incidents and minimizing concerns rather than accepting responsibility and putting a public plan in place to assure customers that it was doing everything it could to manage quality control.
Corporate executives tended to low ball the issues. Management looked increasingly lazy, indifferent or incompetent, or some combination of the three. That is never inspiring to customers or investors.
Plus, this is a very competitive sector, and CMG has direct rivals in its space, so handing them a competitive advantage is not a good strategy.
Finally, as CMG stock continued to drop and lose its premium — and then lose its intrinsic value — management started to wake up. It implemented a strategy to rebuild the brand with more customer-focused initiatives like online ordering, more efficient in-house ordering and a refocusing on delivering healthy products in environment-friendly packaging.
Recently, Chipotle has also added more items to the menu that are focused on some of the today’s more popular health and diet programs, like Whole30 or paleo. And this week it’s actually adding a new protein option to its menu — and it’s not a veggie burger.
It’s carne asada — sliced steak in a lime-cilantro marinade. While several meat joints are going veggie friendly, CMG is sticking with quality meat.
But its return to success is still young. Yet its popularity has drawn back the attention of skeptics and brought in new customers.
In a market looking for good growth stories focused on U.S. consumers, this one is tough to beat.
Now Let’s Talk About Income
The only drawback of CMG stock for many investors is that it doesn’t pay a dividend. And with bonds yielding next to nothing — less than nothing, overseas — a lot of folks are seeking income from their stocks.
That goes for big money on Wall Street, too.
At Growth Investor, we deploy a strategy that helps us find stocks I often call the “Money Magnets.” These stocks have earned an “A” rating from my Portfolio Grader, just like Chipotle — meaning they have strong fundamentals, plus the stocks are enjoying great buying pressure.
And the stocks earned an “A” rating from my Dividend Grader tool. In other words, they pay a dividend — they do it consistently — and they’re growing that dividend over time.
That’s an irresistible combination these days for investors large and small. That’s growth and income, all in one investment.
— Louis Navellier
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Source: Investor Place