I tried to warn you …

Two months ago, I said investors should avoid Chipotle (CMG).  The fast-casual restaurant chain saw its stock fall nearly 30% from mid-October through late-December.

The huge downturn was caused by outbreaks of E. coli found in several of its restaurants. E. coli are bacteria found in humans and animals. Some strains can cause severe food poisoning, kidney failure and even death.

In December, I received e-mails from subscribers asking if Chipotle was a buy following the huge pullback. My advice was to avoid buying Chipotle. As I said:

“Chipotle could fall another 20%, as sales and earnings will likely plunge over the next few quarters.”

Less than a month after my warning, Chipotle fell another 22%. This compares to a drop of just 4% for the S&P 500 in the same time frame.

Shares climbed higher over the past few weeks. That’s because there was a lot of optimism heading into the company’s fourth-quarter earnings report (announced on Tuesday).

But after taking a closer look at this earnings report, Chipotle is not out of the woods yet. In fact, shares are likely to fall a lot further over the next six to nine months.

Let me explain …

On Tuesday, Chipotle reported Q4 earnings of $2.17. This was 32 cents higher than analysts’ estimates. The company generated $998 million in revenue for the quarter. This was slightly below analysts’ estimates.

However, the company said the main driver behind the higher earnings-per-share number was a one-time revaluation of a stock expense. This added 31 cents to earnings. Without this one-time addition, Chipotle would have posted in-line earnings.

More important, Chipotle’s same-store sales (SSS) fell 14.6% for the quarter. SSS is a widely used metric in the restaurant and retail industries. It’s used to compare sales from stores that are open for longer than one year. Margins also fell by 160 basis points (1.6%) compared to last year.

This weakness can be expected.

After all, Chipotle needed to close down some of its stores for food-safety inspections last quarter. Plus, the E. coli outbreak was a national story. Customers avoided dining at Chipotle over the past few months for fear of catching this potential deadly virus.

Some analysts believe these customers will eventually come back to Chipotle. Yet, the company itself is not so sure. Management said (during its conference call on Tuesday):

Our most current research indicates that 63% of Chipotle customers and 60% of fast-casual diners in general are aware of the foodborne illness issues at Chipotle. Of those who are our customers and who are also aware of the issues, right around 60% have indicated that it would cause them to visit less.

This is an incredible statement.

In fact, investors and analysts should be extremely cautious buying shares at current levels based on this statement alone.

Here’s why …

Analysts expect Chipotle to generate $12.80 a share in earnings in 2016. Keep in mind, the company just reported quarterly earnings of $1.86 (that’s without the 31-cent one-time benefit). That would make it close to impossible for Chipotle to meet its full-year earnings forecast.

At $12.80 a share, Chipotle is trading at 35 times earnings. That’s more than twice the valuation of the S&P 500 Index. It’s also a huge multiple for a company that just reported a decline in sales, earnings and margins.

Plus, management said a huge percentage of its customers “plan on visiting Chipotle less.”

To make matters worse, Chipotle also announced the U.S. Attorney’s office for the Central District of California is launching a national investigation against the company. This new subpoena will replace the one announced against one of its stores (in California) in early January.

The new subpoena requires Chipotle to produce documents and information related to almost all of its stores. These include documents dating back to January 2013.

This investigation will likely last through 2016. I’m sure it will cost the company a lot of money and time to comply with the government. More important, this new investigation creates uncertainty.  This uncertainty could scare institutions and other large investors from buying shares in the short term.

Chipotle is super-expensive at current levels. A new national investigation has been filed against the company, which creates more uncertainty. And based on management’s negative commentary during its conference call, I do not see Chipotle returning to its high-growth status anytime soon.

My advice is to continue avoiding Chipotle.