How “Bad Cheese” Sparked Wall Street’s Biggest Comeback Story
A crime against cheese.
These were just a few of the more colorful reviews Business Insider compiled of Chipotle’s now-infamous queso after it hit stores eight months ago.
The great queso experiment was a failure. Chipotle chefs tried to fix the recipe just a couple of months after its lackluster release. But the damage was done. Despite begging Chipotle to add queso to the menu for years, customers hated the “grainy, chowder-like texture,” Business Insider reports.
The cause of Chipotle’s queso problems lies in the company’s policy to use all-natural ingredients, making it incredibly difficult to replicate the nacho cheese texture customers expected.
But Chipotle isn’t giving up on queso just yet. In fact, the botched queso might be the key to the chain’s impressive turnaround efforts, giving you a chance to bank quick gains on the stock’s next leg higher.
Despite the poor reviews, Chipotle is once again working to revamp its recipe. Why? For starters, even the bad queso has been a quiet moneymaker for the restaurant. After the initial rollout, management noted that 19% of its customers were trying the queso. It’s no guac — but it’s certainly adding to the bottom line.
Unfortunately, no one noticed. Chipotle stock was stuck in the gutter, held down by bad cheese reviews and lingering negative sentiment thanks to a handful of high-profile food poisoning cases.
Despite topping fourth-quarter earnings estimates, management warned that its stores would continue to suffer from decreased foot traffic and slow same-store sales growth. Following this dismal earnings announcement back in February, shares tanked to levels not seen since 2012.
The situation appeared hopeless.
But buyers stepped in the following week, pushing the stock back above $300 on news that former Taco Bell boss Brian Niccol was taking the helm.
That set the stage for an amazing comeback rally.
Chipotle reported impressive same-store sales growth and a year-over-year earnings increase of more than 30%. The company even retained customers amid price hikes. Forget about the queso controversy — Chipotle is back in action! The unexpected improvements and upbeat outlook helped launch CMG shares to new nine-month highs.
The stock soared nearly 25% following Chipotle’s impressive earnings beat. After two years of pain and lower share prices, Chipotle is finally getting its act together. Today’s chart shows how last year’s queso failure became the beginning of the bottoming process for CMG shares. February’s big crash was the final wipeout that helped spark the massive earnings rally we witnessed in April. The stock is now knocking on the door of new 52-week highs.
Chipotle’s big breakout could be a sign of more big changes on the way. The chain is experimenting with new menu items at its test kitchen, including quinoa, nachos, and quesadillas. If Niccol can “fix” the queso and roll out some interesting new menu items and limited-time or seasonal offerings, Wall Street would have every reason to forgive Chipotle’s past missteps.
Chipotle can become a growth stock again. This year’s comeback is just the beginning. We’ve waited patiently as the stock has consolidated its post-earnings pop. Shares haven’t given back once cent of their gains so far, setting the stock up for its next leg higher.
We expect CMG to begin its next leg higher within the next two weeks as the stock completes its earnings digestion. A close above $430 could jump-start the move.