Shares of Chipotle Mexican Grill (CMG) plunged after the restaurant revealed that it isn’t sure it’ll meet this year’s sales targets. Apparently, Chipotle’s CEO isn’t impressed with the chain’s customer service track record. This, on top of the recent E. coli outbreak, has weighed on Chipotle’s sales in 2016. Clearly, this does not bode well for the company. Shareholders clearly agree, so CMG shares plunged nearly 10% today.
No one likes to see one of their stocks lose nearly a tenth of its value. But the good news is that there is something you can do to protect yourself from unexpected volatility. Simply, before any of your stocks reports earnings, run it through Portfolio Grader. When it comes to stock analysis or portfolio analysis, Portfolio Grader is an incredibly powerful tool for individual investors. You can read all about Portfolio Grader here, but here’s how it works in a nutshell:
There are two critical characteristics at the center of my stock analysis. The first is strong fundamentals. By fundamentals, I mean sales growth, earnings growth and the like. Growing companies are companies that are healthy and thriving. They have smart leaders who know how to run and manage a smart business. If a company is struggling to sell its products or is spending more than it makes, it’s not a company that you want to own for growth.
The second characteristic I look for in any great stock is strong buying pressure. Think of this as "following the money." The more money that floods into a stock, the more momentum a stock has to rise. And there’s no doubt about it, we all like stocks that rise!
In Portfolio Grader, you’ll notice that not only does the stock fail with an F-rating…it has been stuck there for the past five months running! An F-rating makes CMG an automatic Strong Sell. That’s due to a combination of abysmal buying pressure (F Quantitative Grade) and lackluster fundamentals (D Fundamental Grade).
In fact, of the eight fundamental metrics I graded CMG on, it outright failed on five, and it barely squeaked by with a C on three: Earnings Surprises, Cash Flow and Return on Equity. However, after this latest announcement, it’s likely that even those grades will degrade in the coming weeks.
The bottom line is that running CMG through Portfolio Grader a few days ago could have saved shareholders a lot of heartburn. The flipside of this is that savvy investors can also use Portfolio Grader to research potential buying opportunities this earnings season. For example, you can click here to see my favorite restaurant stock right now.