Did A Viral TikTok Trend Cause Wall Street to “Dine and Dash” Restaurant Stocks?

As you've been endlessly scrolling through social media, pondering the meaning of life, you’ve likely stumbled upon a flood of complaints about Chipotle’s shrinking portion sizes. Well, it turns out it’s not just another meme influencers are using to rake in likes. The outcry has hit Chipotle’s stock hard, causing it to take its worst crash in nearly a year. 

But Wall Street's ever-optimistic bulls aren’t seeing this $7 billion market value tumble as a disaster. Instead, they’re viewing it as a rare chance to snag some Chipotle stock on the cheap. BTIG analyst Peter Saleh summed it up perfectly: “Clearly, consumers are disgruntled by the value proposition across the industry and are pushing back.” Translation: people are tired of paying more for what feels like a lot less food. You don’t say Peter, at least Chipotle isn’t asking us for 20% tips though right?

Chipotle’s shares have experienced the mood swings of a pregnant woman on vacation. They hit a record high on June 18 when shareholders approved a 50-for-1 stock split, which took effect on June 26. But since then, excitement has fizzled out like a flat bottle of sprite, and shares have dropped about 13%. Over the past five days alone, the stock has fallen 7%, now sitting 16% lower than last month’s peak.

The portion-size controversy kicked off when people started grumbling that their burritos were looking more like a snack. CEO Brian Niccol tried to squash the rumors by telling CNBC, “The whole thing is kind of crazy to me,” as if he even knew his favorite order at Chipotle—assuming he’s ever eaten there. Meanwhile, Wells Fargo's analysts threw more fuel on the fire, saying their research found Chipotle’s portions to be as unpredictable as a Biden/Trump debate.

Eric Clark, a portfolio manager at Accuvest Global Advisors, isn’t fazed by all the drama. "Chipotle is an expensive stock and it’s always been, but it has great growth characteristics," he says. In other words, you get what you pay for, even if it's slightly less than expected.

Stifel analyst Chris O’Cull also sees the portion-size uproar as just a speed bump. He’s boosted his sales estimates for Chipotle, driven by strong mobile location data suggesting that people are still flocking to Chipotle like seagulls at a beach.

Maybe that’s why multiple analysts are predicting Chipotle's comparable sales will rise by about 9% in the second quarter, with profits expected to jump 24%. Sure, it’s a slight slowdown from previous years, but still pretty solid. Another reason for the recent dip in share price might be CFO Jack Hartung’s retirement. Adam Rymer is stepping in as Vice President of Finance on January 1st.

Other fast-casual joints like Sweetgreen, Cava, Wingstop, and Shake Shack have also seen their shares get overcooked this week. Investors had high hopes, dreaming these chains would become the next Chipotle, but it looks like the market is saying “not so fast”.

But they’re not alone. The S&P Composite 1500 Restaurants Index has been on a losing streak too. Inflation and high borrowing costs have consumers pinching pennies so hard they’re practically screaming for mercy.

Chipotle’s next round of quarterly results, due on July 24, will be the moment of truth. Until then, it’s a waiting game to see if they can bounce back or if the viral videos will keep serving up trouble.

Stock.News does not have positions in companies mentioned.