Chipotle Mexican Grill, Inc. (NYSE:CMG) shares are up more than 53.85% this year and recently increased 4.25% or $18.11 to settle at $444.67. Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA), on the other hand, is up 62.37% year to date as of 05/16/2018. It currently trades at $22.65 and has returned 2.49% during the past week.
Chipotle Mexican Grill, Inc. (NYSE:CMG) and Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) are the two most active stocks in the Restaurants industry based on today’s trading volumes. The market is clearly enthusiastic about both these stocks, but which is the better investment? To answer this, we will compare the two companies based on the strength of their growth, profitability, risk, returns, valuation, analyst recommendations, and insider trends.Growth
The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect CMG to grow earnings at a 23.75% annual rate over the next 5 years.Profitability and Returns
A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this. Chipotle Mexican Grill, Inc. (CMG) has an EBITDA margin of 10.24%. This suggests that CMG underlying business is more profitable CMG’s ROI is 12.60% while MNTA has a ROI of -24.70%. The interpretation is that CMG’s business generates a higher return on investment than MNTA’s.Cash Flow
The value of a stock is simply the present value of its future free cash flows. CMG’s free cash flow (“FCF”) per share for the trailing twelve months was +5.14. Comparatively, MNTA’s free cash flow per share was -0.55. On a percent-of-sales basis, CMG’s free cash flow was 3.21% while MNTA converted -0.03% of its revenues into cash flow. This means that, for a given level of sales, CMG is able to generate more free cash flow for investors.Liquidity and Financial Risk
Balance sheet risk is one of the biggest factors to consider before investing. CMG has a current ratio of 1.70 compared to 9.80 for MNTA. This means that MNTA can more easily cover its most immediate liabilities over the next twelve months. CMG’s debt-to-equity ratio is 0.00 versus a D/E of 0.00 for MNTA. CMG is therefore the more solvent of the two companies, and has lower financial risk.Valuation
CMG trades at a forward P/E of 38.53, a P/B of 9.10, and a P/S of 2.71, compared to a P/B of 5.11, and a P/S of 15.80 for MNTA. CMG is the cheaper of the two stocks on sales basis but is expensive in terms of P/E and P/B ratio. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.
Analyst Price Targets and Opinions
A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. CMG is currently priced at a 21.96% to its one-year price target of 364.60. Comparatively, MNTA is 40.07% relative to its price target of 16.17. This suggests that CMG is the better investment over the next year.
Risk and Volatility
To gauge the market risk of a particular stock, investors use beta. Stocks with a beta above 1 are more volatile than the market as a whole. Conversely, a beta below 1 implies below average systematic risk. CMG has a beta of 0.49 and MNTA’s beta is 1.60. CMG’s shares are therefore the less volatile of the two stocks.Insider Activity and Investor Sentiment
Analysts often look at short interest, or the percentage of a company’s float currently being shorted by investors, to aid in their outlook for a particular stock. CMG has a short ratio of 3.76 compared to a short interest of 4.49 for MNTA. This implies that the market is currently less bearish on the outlook for CMG.Summary
Chipotle Mexican Grill, Inc. (NYSE:CMG) beats Momenta Pharmaceuticals, Inc. (NASDAQ:MNTA) on a total of 9 of the 14 factors compared between the two stocks. CMG is growing fastly, is more profitable, generates a higher return on investment, has higher cash flow per share and has a higher cash conversion rate. CMG is more undervalued relative to its price target. Finally, CMG has better sentiment signals based on short interest.