It’s common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.
So if this idea of high risk and high reward doesn’t suit, you might be more interested in profitable, growing companies, like Chipotle Mexican Grill (NYSE:CMG). While profit isn’t the sole metric that should be considered when investing, it’s worth recognising businesses that can consistently produce it.
See our latest analysis for Chipotle Mexican Grill
How Fast Is Chipotle Mexican Grill Growing?
If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. Chipotle Mexican Grill’s shareholders have have plenty to be happy about as their annual EPS growth for the last 3 years was 48%. Growth that fast may well be fleeting, but it should be more than enough to pique the interest of the wary stock pickers.
It’s often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company’s growth. While we note Chipotle Mexican Grill achieved similar EBIT margins to last year, revenue grew by a solid 14% to US$10b. That’s encouraging news for the company!
You can take a look at the company’s revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.
You don’t drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Chipotle Mexican Grill’s future profits.
Are Chipotle Mexican Grill Insiders Aligned With All Shareholders?
Since Chipotle Mexican Grill has a market capitalisation of US$87b, we wouldn’t expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. Notably, they have an enviable stake in the company, worth US$572m. While that is a lot of skin in the game, we note this holding only totals to 0.7% of the business, which is a result of the company being so large. This still shows shareholders there is a degree of alignment between management and themselves.
Should You Add Chipotle Mexican Grill To Your Watchlist?
Chipotle Mexican Grill’s earnings per share growth have been climbing higher at an appreciable rate. That EPS growth certainly is attention grabbing, and the large insider ownership only serves to further stoke our interest. The hope is, of course, that the strong growth marks a fundamental improvement in the business economics. So at the surface level, Chipotle Mexican Grill is worth putting on your watchlist; after all, shareholders do well when the market underestimates fast growing companies. We don’t want to rain on the parade too much, but we did also find 1 warning sign for Chipotle Mexican Grill that you need to be mindful of.
There’s always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a tailored list of companies which have demonstrated growth backed by significant insider holdings.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.