We Ran A Stock Scan For Earnings Growth And Chipotle Mexican Grill (NYSE:CMG) Passed With Ease

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

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). 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

Chipotle Mexican Grill's Improving Profits

Over the last three years, Chipotle Mexican Grill has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. Chipotle Mexican Grill's EPS shot up from US$28.93 to US$42.65; a result that's bound to keep shareholders happy. That's a fantastic gain of 47%.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Chipotle Mexican Grill shareholders can take confidence from the fact that EBIT margins are up from 12% to 16%, and revenue is growing. Both of which are great metrics to check off for potential growth.

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for Chipotle Mexican Grill's future EPS 100% free.

Are Chipotle Mexican Grill Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$66b company like Chipotle Mexican Grill. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. Indeed, they have a considerable amount of wealth invested in it, currently valued at US$424m. We note that this amounts to 0.6% of the company, which may be small owing to the sheer size of Chipotle Mexican Grill but it's still worth mentioning. This still shows shareholders there is a degree of alignment between management and themselves.

Is Chipotle Mexican Grill Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into Chipotle Mexican Grill's strong EPS growth. With EPS growth rates like that, it's hardly surprising to see company higher-ups place confidence in the company through continuing to hold a significant investment. On the balance of its merits, solid EPS growth and company insiders who are aligned with the shareholders would indicate a business that is worthy of further research. Still, you should learn about the 1 warning sign we've spotted with Chipotle Mexican Grill.

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 recent insider purchases.

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.