Do Chipotle Mexican Grill's (NYSE:CMG) Earnings Warrant Your Attention?
Like a puppy chasing its tail, some new investors often chase 'the next big thing', even if that means buying 'story stocks' without revenue, let alone profit. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses.
So if you're like me, you might be more interested in profitable, growing companies, like Chipotle Mexican Grill (NYSE:CMG). While that doesn't make the shares worth buying at any price, you can't deny that successful capitalism requires profit, eventually. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
See our latest analysis for Chipotle Mexican Grill
Chipotle Mexican Grill's Earnings Per Share Are Growing.
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS). That means EPS growth is considered a real positive by most successful long-term investors. It certainly is nice to see that Chipotle Mexican Grill has managed to grow EPS by 29% per year over three years. So it's not surprising to see the company trades on a very high multiple of (past) earnings.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While we note Chipotle Mexican Grill's EBIT margins were flat over the last year, revenue grew by a solid 11% to US$6.3b. That's a real positive.
You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.
You don't drive with your eyes on the rear-view mirror, so you might be more interested in this freereport showing analyst forecasts for Chipotle Mexican Grill's future profits.
Are Chipotle Mexican Grill Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$41b company like Chipotle Mexican Grill. But we do take comfort from the fact that they are investors in the company. Notably, they have an enormous stake in the company, worth US$618m. I would find that kind of skin in the game quite encouraging, if I owned shares, since it would ensure that the leaders of the company would also experience my success, or failure, with the stock.
Is Chipotle Mexican Grill Worth Keeping An Eye On?
For growth investors like me, Chipotle Mexican Grill's raw rate of earnings growth is a beacon in the night. I think that EPS growth is something to boast of, and it doesn't surprise me that insiders are holding on to a considerable chunk of shares. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. What about risks? Every company has them, and we've spotted 1 warning sign for Chipotle Mexican Grill you should know about.
Although Chipotle Mexican Grill certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this freelist of growing companies that insiders are buying, could be exactly what you're looking for.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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