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. 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. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Chipotle Mexican Grill (NYSE:CMG). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Chipotle Mexican Grill with the means to add long-term value to shareholders.
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) outcomes. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. It certainly is nice to see that Chipotle Mexican Grill has managed to grow EPS by 29% per year over three years. This has no doubt fuelled the optimism that sees the stock trading on a high multiple of earnings.
Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. EBIT margins for Chipotle Mexican Grill remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 15% to US$11b. That's a real positive.
The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Chipotle Mexican Grill's forecast profits?
Are Chipotle Mexican Grill Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$82b company like Chipotle Mexican Grill. But we do take comfort from the fact that they are investors in the company. Notably, they have an enviable stake in the company, worth US$546m. This comes in at 0.7% of shares in the company, which is a fair amount of a business of this size. So despite their percentage holding being low, company management still have plenty of reasons to deliver the best outcomes for investors.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, you'd argue that they are indeed. Our analysis has discovered that the median total compensation for the CEOs of companies like Chipotle Mexican Grill, with market caps over US$8.0b, is about US$13m.
The CEO of Chipotle Mexican Grill only received US$6.3m in total compensation for the year ending December 2023. That looks like a modest pay packet, and may hint at a certain respect for the interests of shareholders. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Is Chipotle Mexican Grill Worth Keeping An Eye On?
For growth investors, Chipotle Mexican Grill's raw rate of earnings growth is a beacon in the night. If you need more convincing beyond that EPS growth rate, don't forget about the reasonable remuneration and the high insider ownership. The overarching message here is that Chipotle Mexican Grill has underlying strengths that make it worth a look at. You should always think about risks though. Case in point, we've spotted 1 warning sign for Chipotle Mexican Grill you should be aware of.
While opting for stocks without growing earnings and absent insider buying can yield results, for investors valuing these key metrics, here is a carefully selected list of companies in the US with promising growth potential and insider confidence.
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.
