Chipotle Mexican Grill's (NYSE:CMG) Returns Have Hit A Wall

What trends should we look for it we want to identify stocks that can multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. So, when we ran our eye over Chipotle Mexican Grill's (NYSE:CMG) trend of ROCE, we liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. To calculate this metric for Chipotle Mexican Grill, this is the formula:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.17 = US$1.0b ÷ (US$6.8b - US$818m) (Based on the trailing twelve months to September 2022).

So, Chipotle Mexican Grill has an ROCE of 17%. On its own, that's a standard return, however it's much better than the 11% generated by the Hospitality industry.

View our latest analysis for Chipotle Mexican Grill

Above you can see how the current ROCE for Chipotle Mexican Grill compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Chipotle Mexican Grill.

The Trend Of ROCE

The trend of ROCE doesn't stand out much, but returns on a whole are decent. The company has employed 245% more capital in the last five years, and the returns on that capital have remained stable at 17%. Since 17% is a moderate ROCE though, it's good to see a business can continue to reinvest at these decent rates of return. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Key Takeaway

The main thing to remember is that Chipotle Mexican Grill has proven its ability to continually reinvest at respectable rates of return. And long term investors would be thrilled with the 444% return they've received over the last five years. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

Chipotle Mexican Grill could be trading at an attractive price in other respects, so you might find our free intrinsic value estimation on our platform quite valuable.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive returns on equity.

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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.