Chipotle stock price chart points to a crash ahead of earnings

Chipotle Mexican Grill stock price has plummeted in the past few months, moving from a record high of $68.86 in January to $40 today. This crash has brought its market capitalization from $97.1 billion to $52 billion. This article explains why the CMG stock may crash after publishing its earnings today. 

Chipotle stock price technical analysis 

The weekly chart shows that the CMG share price has crashed in the past few months. This crash happened after it formed a double-top pattern at $66.55, its highest point in June and December last year. 

Its neckline was at $47.77, its lowest point on August 12. A double-top is one of the most bearish patterns in technical analysis. 

It has now formed a death cross pattern as the 50-week and 200-week Weighted Moving Averages (WMA) have formed a bearish crossover known as a death cross. This pattern normally leads to more downside over time. 

Chipotle stock price has formed a bearish flag pattern, which is made up of a vertical line and some consolidation. It normally resembles an inverted hoisted flag. 

The stock has moved to the weak, stop & reverse point of the Murrey Math Lines tool. Therefore, it will likely continue falling as sellers target the ultimate support line at $37.5. On the flip side, a move above the strong, pivot, reverse at $43.75 will invalidate the bearish outlook.

Chipotle Mexican Grill earnings ahead 

The main catalyst for the CMG stock price is the upcoming earnings report, which will provide more information about its growth trajectory. 

The most recent results showed that the company is no longer growing as it did in the past. Its revenue grew by 3% in the second quarter to $3.1 billion. Most importantly, the closely-watched comparable restaurant sales fell by 4% during the quarter.

More data showed that its business deteriorated during the quarter. Its operating margin was 18.2%, down from the previous quarter’s 19.7%. Its restaurant-level operating margin also fell to 27.4%.

Chipotle’s business has struggled since its previous CEO, Brian Niccol, left the company to become Starbucks’ CEO last year. His departure coincided with Donald Trump’s re-election and the trade war that has made it expensive to operate. 

Wall Street analysts expect that the company’s revenue will come in at $3.02 billion, a 8.20% increase from what it made last year. They also expect the numbers to show that the earnings per share grew from 27 cents to 29 cents. 

On the positive side, analysts remain optimistic that the company will bounce back now that it has gone through a valuation reset. 

Data shows that its forward P/E ratio is 34, higher than the sector median of 19. This figure makes it a bargain compared to where it was historically, as its five-year average is 58. Its non-GAAP P/E ratio is 34, also lower than the five-year average of 56.

Therefore, while Chipotle has weak technicals, there is a likelihood that it will rebound if it publishes stronger-than-expected results.

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