Mad Money

Cramer: Dangers of trading on earnings after hours

Holy guacamole: Cramer's read on CMG

If you are an investor with an urge to make yourself look like a fool in trading after hours, then Jim Cramer says to look no further than what just happened with Chipotle.

Chipotle's stock had been under pressure after weaker than expected guidance last quarter. However, the stock ran up approximately 10 percent going into Tuesday's earnings, mainly because of rumors that the worst might finally be over.

But one minute after it reported on Tuesday, the quarter was immediately labeled a miss. As a result, the stock that closed at $674 on Tuesday plunged more than 50 points. The longs got rid of the stock, and the short sellers placed their bets against the once red-hot sock.

The stock then rode a roller coaster up and down as the company conference call ensued. Chipotle CEO Steve Ells kicked off the call by discussing the need to remove GMOs from all food and anything unnatural from tortillas. He also mentioned how the company is frantically trying to source pork from better treated hogs, and introduced its new online game called "Friend or Faux" where customers can earn free food in an online quiz.

The stock stayed low the whole time.

Don't trade right after you see the headlines and listen to what the darned CFO has to say,
Jim Cramer
Chipotle restaurant in New York City
Scott Mlyn | CNBC

Then co-CEO Monty Moran discussed throughput, a term describing how quickly customers can go through the Chipotle eating experience, and the stock momentarily lifted. But it dropped right back down once he mentioned labor costs would go higher to pay employees better to improve customer service.

But everything changed when Chipotle's CFO, Jack Hartung, keeper of the numbers, came on the call. He explained that the month of July was actually very strong and that pork shortage that has been hindering the company will be returning to stores. These positives weren't even included in the numbers, as July is not covered by the quarter it just reported.

What else was missing from the numbers? How about the price increase that Chipotle recently put in place in certain areas, which are producing no drop off in sales. Investors also learned there was a 16-cent hit to the quarter because of a labor scheduling issue.

Thus, the earnings were actually better than expected, and the same-store sales numbers are actually on the upswing.

Boom! The stock recovered all but 10 points.

Finally, the game changed when Hartung explained that Chipotle intended to buy back stock with all of the cash it has accumulated on its balance sheet. In fact, it had already put $100 million to work over the past three months.

That was it. By the end of the call, the stock was back in the black.

Read more from Mad Money with Jim Cramer
Cramer Remix: Sold this? Here's your dunce cap
Cramer: Why I was so wrong about oil
Cramer: Apple is ready for a downgrade

The momentum continued on Wednesday as Chipotle gained 7.7 percent in one day. As an added bonus, oil broke down below $50, which sent all restaurant stocks flying.

Cramer's moral of the story?

"Wait, don't trade right after you see the headlines and listen to what the darned CFO has to say," the "Mad Money" host said. (Tweet This)

Those who waited just made over $100 in Chipotle. If you are one of the investors who didn't wait, Cramer wants you to either stop jumping the gun, or get out of the game.

Questions for Cramer?
Call Cramer: 1-800-743-CNBC

Want to take a deep dive into Cramer's world? Hit him up!
Mad Money Twitter - Jim Cramer Twitter - Facebook - Instagram - Vine

Questions, comments, suggestions for the "Mad Money" website?