Chipotle Mexican Grill, Inc. (NYSE: CMG) is having a rough time in the pre-market hours this morning, and for good reason. By now, most of us know that one of the company’s restaurants was shut down yesterday due to severe illnesses being reported in customers after they ate there. While some are touting this as a reason to stay away from the stock, others are calling it a buying opportunity. So, which is the case here? Before we get into it, we’d like to give a special thanks to our partners at Trade Ideas for being the first to alert us to the movement on the stock. At the moment (9:00), CMG is trading at $371.18 per share after a loss of $3.80 per share (1.01%) thus far today.
For Those Of You Who Didn’t See The CMG News
As mentioned above, yesterday proved to be a rough day for Chipotle Mexican Grill. That’s because multiple instances of vomiting, diarrhea, severe stomach pain, dehydration, and nausea were reported after consumers ate at a CMG restaurant in Virginia.
According to the most recent reports, there have been a total of 8 reports made that indicate that at least 13 people have fallen ill after eating at the restaurant on Friday and Saturday. The symptoms of the illness were those expected of consumers who contract norovirus. Nonetheless, Jim Marden, Executive Director of Food Safety at CMG, says that it is safe to eat at their restaurants. Here’s what he had to say:
“We are working with health authorities to understand what the cause may be and to resolve the situation as quickly as possible… The reported symptoms are consistent with norovirus. Norovirus does not come from our food supply, and it is safe to eat at Chipotle.”
Is This A Buying Opportunity?
There’s no doubt that there is a good reason that some are calling this a buying opportunity. After yesterday’s declines, followed by more today, if you wanted to get in on the investment, you’d be getting in at a discount. However, is that really a smart idea? Here’s the argument:
- Those Who Are For CMG – Those who say that now is a good time to invest in Chipotle Mexican Grill point to the fact that this is an isolated event, so far, and that it will likely be cleared up relatively soon. Therefore, getting in now gives investors a discounted opportunity to get in on future gains.
- Those Against The Buy – While some believe this is a great buying opportunity, others believe that if you buy now, you’re going to lose. Their argument is simple. It’s possible that the norovirus did indeed come from the CMG food supply. If this is the case, we will see more reports in the days, weeks, and months to come; ultimately dragging the stock further into losses.
So, when answering the buying opportunity question, the best way to answer is that it depends on your tolerance for risk. Are you willing to risk your working capital, knowing that it’s possible that this proves not to be an isolated event? If so, you may be in the running for big gains ahead.
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What We’ll Be Watching For Ahead
Moving forward, the CNA Finance team will be keeping a close eye on CMG. In particular, we’re interested in following the news to see if this is indeed an isolated event that will be handled quickly, or if this will soon expand to other restaurants, proving to be a systemic issue. Nonetheless, we’ll continue to follow the story closely and bring the news to you as it breaks!
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