Has Chipotle Mexican Grill, Inc. (CMG) Become the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing’s for sure: You’ll never discover truly great investments unless you actively look for them. Let’s discuss the ideal qualities of a perfect stock and then decide whether Chipotle Mexican Grill, Inc. (NYSE:CMG) fits the bill.

Chipotle Mexican Grill, Inc. (NYSE:CMG)The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it’s certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can’t produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management’s attention. Companies with strong balance sheets don’t have to worry about the distraction of debt.
  • Moneymaking opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can’t afford to pay too much for even the best companies. By using normalized figures, you can see how a stock’s simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can’t be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let’s take a closer look at Chipotle.

Factor What We Want to See Actual Pass or Fail?
Growth 5-year annual revenue growth > 15% 20.3% Pass
1-year revenue growth > 12% 20.3% Pass
Margins Gross margin > 35% 37.6% Pass
Net margin > 15% 10.2% Fail
Balance sheet Debt to equity < 50% 0.3% Pass
Current ratio > 1.3 2.93 Pass
Opportunities Return on equity > 15% 24.3% Pass
Valuation Normalized P/E < 20 34.53 Fail
Dividends Current yield > 2% 0% Fail
5-year dividend growth > 10% 0% Fail
Total score 6 out of 10

Source: S&P Capital IQ. Total score = number of passes.

Since we looked at Chipotle last year, the company has kept its 6-point score for the third year in a row. But the stock has fallen nearly 20% over the past year as Chipotle finally hit a roadblock in its lightning-fast growth.