Investors shouldn’t overlook Chipotle Mexican Grill’s (NYSE:CMG) impressive returns on invested capital
If you’re looking for a multi-bagger, there are a few things to look out for. In a perfect world, we’d like to see a company investing more capital into its business, and ideally, the returns on that capital are increasing as well. This shows us that it’s a capitalisation machine, able to continually reinvest its profits back into the business and generate higher returns. With that in mind, the ROCE of Chipotle Mexican Grill (NYSE:CMG) looks great, so let’s see what the trend can tell us.
Return on Capital Employed (ROCE): What is it?
If you’ve never worked with ROCE, it measures the “return” (pre-tax profit) a company generates from the capital employed in its business. The formula for this calculation on Chipotle Mexican Grill is as follows:
Return on capital employed = Earnings before interest and taxes (EBIT) ÷ (Total assets – Current liabilities)
0.22 = $1.7 billion ÷ ($8.4 billion – $997 million) (Based on the last twelve months to March 2024).
So, Chipotle Mexican Grill has an ROCE of 22%. In absolute terms, this is an excellent return, even better than the hotel sector average of 11%.
Check out our latest analysis for Chipotle Mexican Grill
In the chart above we’ve compared Chipotle Mexican Grill’s past ROCE to its past performance, but the future is arguably more important. If you’d like to see what the analysts are predicting for the future, you should check out our free analyst report for Chipotle Mexican Grill.
What the evolution of ROCE can teach us
We are pleased with the trends we are seeing at Chipotle Mexican Grill. The data shows that return on capital has increased substantially over the past five years, reaching 22%. The amount of capital employed has also increased by 83%. Increasing returns on an increasing amount of capital is common among multi-baggers and that is why we are impressed.
Chipotle Mexican Grill ROCE Update
In summary, it’s great to see that Chipotle Mexican Grill can generate compound returns by regularly reinvesting capital at increasing rates of return, as these are some of the key ingredients in these highly sought-after multi-baggers. Given that the stock has returned a staggering 226% to shareholders over the last five years, it seems that investors are recognizing these changes. So, given that the stock has proven to exhibit some promising trends, it’s worth investigating the company further to see if these trends are likely to persist.
Another thing to note, we have identified 1 warning sign with Chipotle Mexican Grill and understanding it should be part of your investment process.
Chipotle Mexican Grill isn’t the only stock generating high returns. If you’d like to see more, check out our free list of companies generating high returns on equity with strong fundamentals.
Do you have any comments on this article? Are you concerned about its content? Get in touch with us directly. You can also send an email to editorial-team (at) simplywallst.com.
This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to constitute financial advice. This is not a recommendation to buy or sell any stock, and does not take into account your objectives or financial situation. Our goal is to provide you with focused, long-term analysis based on fundamental data. Please note that our analysis may not factor in the latest price-sensitive company announcements or qualitative information. Simply Wall St has no position in any of the stocks mentioned.
Do you have any comments on this article? Are you concerned about its content? Contact us directly. You can also send an email to editorial-team@simplywallst.com
