Shares of Chipotle Mexican Grill plunged more than 20% Friday after the company reported weaker-than-expected sales growth, even as profits rose in the second quarter.
The sell-off came after Chipotle said late Thursday that same-store sales, a key measure of demand, grew only 8% during the quarter, compared with an expected increase of 10.2%.
At the same time, Chipotle reported earnings of $2.56 per share, topping Wall Street estimates.
Despite the relatively strong results, several industry analysts lowered their ratings on Chipotle stock, which has been on a tear since 2009.
"We believe it is time to take gains from the last 1-2 years, and adopt a more cautious stance towards the stock's 12-month outlook," said Janney Capital Markets Analyst Mark Kalinowski, who lowered his rating on Chipotle to Neutral from Buy, in a note.
Other analysts said the stock was overvalued and that Chipotle's fall from grace in the market is probably a good thing.
"For any other restaurant company, Chipotle's results would have been phenomenal," said Morningstar analyst RJ Hottovy. "But Chipotle has had unrealistic long-term growth assumptions priced in for a long time, with little room for error.">
In April, Chipotle hit a record high of $440 a share. At that level, "you had to bank on the company doing no wrong," said Hottovy, who added that Chipotle would be fairly valued at $300 a share.
"Chipotle is a very well run company with a lot of growth ahead of it," he said. "But at a certain point you need to factor in a reasonable growth rate."
Chipotle said the weak economy and changes in consumer behavior were to blame for the drop in sales during April, May and June. But the burrito maker also noted increased competition from rival fast-food chains and rising commodity costs.
"The recent extreme weather will likely put pressure on our food cost later in the year and into 2013," Chipotle Chief Executive Steve Ells told analysts in a conference call Thursday.
As the Midwest continues to suffer through its worst drought in more than 50 years, Chipotle expects to pay more for many of its key ingredients, including avocados, beef, dairy and chicken.
"The corn is wilting as we speak," said Raymond James analyst Bryan Elliott.
While the increase in commodity costs is a major concern, Elliott said the sell-off was more a reflection of Chipotle's status as a "cult stock."
Elliott said he's had a sell rating on Chipotle for awhile.
"They don't cure cancer, they make burritos," he said. "They're very good burritos, but Chipotle is not that different from any other restaurant chain."
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