Chipotle, which has long promised healthier, fresher food, has recently left investors’ portfolios a lot sicker.
The burrito chain has been hit by a number of bacterial outbreaks, including a December bout of norovirus that sickened more than 150 customers in Boston, following E. Coli incidents earlier in the fall. And the company’s shares fell 29% in 2015. That made it one of the worst performing restaurant stocks last year. Even shares of McDonald’s (mcd), which has had its own troubles, were up 26%. Starbucks’ (sbux) stock rose 46% in 2015.
Shares of Chipotle (cmg) are down 41% from where they were in early August. And it tumbled another $18 on Wednesday, to a 52-week low of $430.
Anecdotally, there have been reports of fewer people lining up for burritos, but Chipotle on Wednesday released some hard numbers on how much its health problems have been keeping customers away, which is what sent the stock lower. It was worse than expected. Chipotle said same store sales in December dropped 30%.
That’s a big drop. Last year, same store sales were up over 16% for the fourth quarter of the year. But there’s some good news. Historically, restaurant customers don’t tend to stay away for long. Two years ago, Yum Brands (yum) saw a quarterly same store sales drop of 20% in China amid concerns about the safety of its food. Within a year, Yum’s China sales had bounded.
The question is whether Chipotle is really worth 40% less than it was just a few months ago. High expectations had been built into the company’s stock. Investors were valuing the shares at a price-to-earnings ratio of 50 last year. The recent drop has taken the p/e down to around 29, based on what the company is expected to have earned in 2015. That’s in line with rivals. McDonald’s has a p/e of 24. Starbucks’ p/e is 30.
But Starbucks is considerably more profitable than Chipotle. The coffee chain’s gross profit margins are 60%. Chipotle’s are 25%. The improvements in food safety that the chain is likely to implement at least for the time being will make its costs, and those profits, go down. The company has already said it has incurred $15 million in costs related to the outbreaks. And it cut its earnings outlook for the fourth quarter by a third.
What’s more, even before Chipotle released its recent sales drop, analysts had been expecting the company’s profit growth to slow, to just 2% in 2016. Starbucks earnings were expected to be up 15% this year. McDonald’s growth was expected to rebound to 10%.
All that means Chipotle’s shares are likely safer than they were few months ago. But even at a 40% dip, they are not quite the healthiest option on Wall Street.