Trending Stock Is Chipotle Mexican Grill, Inc. a Buy Now?
Chipotle Mexican Grill (NYSE:CMG) is one of the most watched stocks by Zacks.com visitors in recent times. So it might be a good idea to look at some of the factors that could affect the stock’s short-term performance.
Shares of this Mexican food chain have returned -1.5% over the past month, compared with a +3.1% change in the Zacks S&P 500 composite. The Zacks Retail – Restaurants industry, to which Chipotle belongs, lost 3.2% over this period. Now the key question is: where could the stock be headed in the near term?
Even though press releases or rumors about a substantial change in a company’s business prospects usually move its stock and result in an immediate price change, there are still fundamental facts that end up dominating company decision-making. purchase and storage.
Earnings Estimate Revisions
Rather than focusing on anything else, at Zacks we prioritize evaluating the change in a company’s earnings forecasts. Indeed, we believe that the fair value of its shares is determined by the present value of its future earnings streams.
Our analysis primarily relies on how the sell-side analysts covering the stock are revising their earnings estimates to take into account the latest business trends. When a company’s earnings estimates rise, the fair value of its shares rises as well. And when a stock’s fair value is higher than its current market price, investors tend to buy the stock, causing its price to rise. For this reason, empirical studies indicate a strong correlation between trends in earnings estimate revisions and near-term stock price movements.
For the current quarter, Chipotle is expected to report earnings of $15.58 per share, a change of +23.2% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.1% over the past 30 days.
For the current fiscal year, the consensus earnings estimate of $55.30 indicates a change of +23.3% from the prior year. Over the last 30 days, this estimate has remained unchanged.
For the next fiscal year, the consensus earnings estimate of $66.52 indicates a +20.3% change from what Chipotle was expected to report a year ago. Over the past month, the estimate has changed by +0.1%.
Backed by a strong external audit history, our proprietary stock rating tool, the Zacks Rank, provides a more conclusive picture of a stock’s near-term price direction because it effectively harnesses the power of revisions to earnings estimates. Due to the size of the recent change in the consensus estimate, as well as three other factors related to earnings estimates, Chipotle has a Zacks Rank #3 (Hold).
The chart below shows the change in the company’s 12-month consensus EPS estimate:
12-month EPS
Projected revenue growth
While a company’s earnings growth is arguably the best indicator of its financial health, not much happens if it can’t grow its revenue. It is almost impossible for a company to grow profits without increasing revenue for long periods of time. It is therefore crucial to know a company’s potential revenue growth.
In Chipotle’s case, the consensus sales estimate of $2.92 billion for the current quarter indicates a year-over-year change of +16.3%. Estimates of $11.35 billion and $12.84 billion for the current and next fiscal years indicate changes of +15% and +13.1%, respectively.
Latest reported results and history of surprises
Chipotle reported revenue of $2.7 billion in its most recent reported quarter, representing a year-over-year change of +14.1%. EPS of $13.37 for the same period, compared to $10.50 a year ago.
Compared to the Zacks Consensus Estimate of $2.67 billion, the reported earnings came as a surprise of +1.01%. The EPS surprise was +14.96%.
The company has beaten consensus EPS estimates in each of the last four quarters. The company beat consensus revenue estimates three times during this period.
Assessment
No investment decision can be effective without taking into account the valuation of a security. Whether a stock’s current price correctly reflects the intrinsic value of the underlying business and the company’s growth prospects is a determining factor in its future price performance.
By comparing the current values ​​of a company’s valuation multiples, such as price-to-earnings (P/E), price-to-sales (P/S), and price-to-cash flow (P/CF), with its Own historical values ​​help determine whether its stock is fairly valued, overvalued or undervalued, comparing the company against its peers on these metrics gives a good idea of ​​whether the stock price is reasonable.
The Zacks Value Style Score (part of the Zacks Style Scores system), which pays attention to traditional and unconventional valuation metrics to grade stocks from A to F (an An is better than a B; a B is better than a C); etc.), is very useful in determining whether a stock is overvalued, correctly priced or temporarily undervalued.
Chipotle is rated F on this front, indicating that it trades at a premium to its peers.
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