Shares of Chipotle Mexican Grill (NYSE: CMG) are taking it on the chin today. That’s because its highly successful leader is leaving the company. But investors may just be panicking, and that’s never a winning investment strategy.
Chipotle shares plunged as much as 14% and were still trading more than 10% lower in midday trading after the company announced CEO Brian Niccol was leaving to become the new CEO of Starbucks.
Niccol has been Chipotle’s CEO since 2018. He drove investments in personnel and equipment to push digital growth initiatives that have boosted sales significantly. About 25% of Chipotle restaurants now include efficient “Chipotlane” drive-thru lanes. The company expects more than 80% of future restaurants to include them as well.
The mother of all stock splits
Sales more than doubled under Niccol’s watch, and the stock price soared. On June 25, Chipotle executed a massive 50-for-1 stock split, one of the largest in the history of the New York Stock Exchange (NYSE).
But the stock has now fallen by about 27% since its peak just prior to the stock split. Today’s news accelerated that downward momentum.
However, much of the selling came from investors taking profits as the valuation got ahead of the business. Chipotle’s price-to-earnings (P/E) ratio was over 70 at a multiyear high at the stock’s peak.
Today’s panic selling may now be the opening investors can use to own some of the highly successful restaurant chain. Chipotle’s COO Scott Boatwright will be taking over for Niccol as interim CEO. Boatwright has been with the company even longer than Niccol and oversaw the operational growth that has led to the stock’s massive rise.
Investors rarely benefit from panicking, and today might just be another example where buyers can take advantage of an opportunity created by it.
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Howard Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool recommends the following options: short September 2024 $52 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
Chipotle Stock Took a Hit Today. Here’s Why It Will Rebound. was originally published by The Motley Fool
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