Why Chipotle Shares Were Spit Out

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of burrito specialist Chipotle Mexican Grill sank as low as 10% today after its preliminary fourth-quarter results disappointed Wall Street.

So what: The stock has been beaten up over the past six months on concerns of increased competition as well as rising expenses, and today's downbeat guidance only reinforces those fears. While revenue is expected to jump 17% in the fourth quarter, a 130-basis-point increase in food costs suggests that management may have to abruptly raise prices and run the risk of slowing its growth even further.

Now what: Management now sees fourth-quarter EPS of $1.92-$1.97 on revenue of $699.2 million, versus the consensus estimate of $2.08 and $690.7 million, respectively. "We are confident in our ability to continue to drive attractive top line sales growth in 2013 through a combination of new restaurant growth, and by having teams of empowered top performers providing an extraordinary dining experience for our customers," co-CEO Monty Moran reassured investors. Of course, when you couple the stock's plus-30 P/E with the strong competitive and cost headwinds facing Chipotle, I'd hold out for a wider margin of safety before buying into that bull talk.

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The article Why Chipotle Shares Were Spit Out originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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