Why Chipotle Stock Was Down on an Up Day
Key Points
Bloomberg reported that Chipotle locations in Minnesota had pulled jalapenos after a Salmonella outbreak.
The event is reminiscent of an E. coli outbreak back in 2015 that hammered the stock.
Investors should follow the story to see if the outbreak spreads.
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Shares of Chipotle Mexican Grill (NYSE: CMG) were sliding today on reports that the company was facing another potential food-safety crisis after it pulled jalapeños from multiple stores in Minnesota following a Salmonella outbreak in the state.
As of 2:18 p.m. ET, the stock was down 7.9% on the news.
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Image source: Chipotle.
Here we go again
According to Bloomberg, of 84 people sickened by the outbreak who were interviewed, 75 had eaten at a Chipotle.
The extent of the outbreak is unclear at this point, but the news is surely digging up bad memories for investors of an earlier food safety crisis when a 2015 E. coli outbreak crushed the stock and the business for years.
Chipotle has worked hard to regain trust from customers, and the company hasn't had a major food safety incident since that era. With today's news, however, the company runs the risk of scaring off customers once again.
What it means for Chipotle
Chipotle has replaced the suspect jalapeños with those from different suppliers, and the company said the outbreak had affected several food service companies. After switching suppliers, the Minnesota health department no longer believes that eating at Chipotle is a risk.
If the outbreak is contained to just this incident, it's likely a non-event for the company. However, if it spreads to other states and stays in the news, especially if more Chipotle customers fall ill, then it's likely to be a problem for the fast-casual chain.
Today's sell-off, which seems mostly provisional, makes sense.
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Jeremy Bowman has positions in Chipotle Mexican Grill. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends the following options: short September 2026 $35 calls on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
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