Earnings

Uncovering the next great stocks: Signet Jewelers Limited (SIG), Chipotle Mexican Grill, Inc. (CMG)

The shares of Signet Jewelers Limited have decreased by more than -29.92% this year alone. The shares recently went up by 2.59% or $1 and now trades at $39.63. The shares of Chipotle Mexican Grill, Inc. (NYSE:CMG), has jumped by 13.00% year to date as of 04/16/2018. The shares currently trade at $326.60 and have been able to report a change of 3.00% over the past one week.

The stock of Signet Jewelers Limited and Chipotle Mexican Grill, Inc. were two of the most active stocks on Monday. Investors seem to be very interested in what happens to the stocks of these two companies but do investors favor one over the other? We will analyze the growth, profitability, risk, valuation, and insider trends of both companies and see which one investors prefer.

Next 5Y EPS Growth: 7.00% versus 22.35%

When a company is able to grow consistently in terms of earnings at a high compound rate have the highest likelihood of creating value for its shareholders over time. Analysts have predicted that SIG will grow it’s earning at a 7.00% annual rate in the next 5 years. This is in contrast to CMG which will have a positive growth at a 22.35% annual rate. This means that the higher growth rate of CMG implies a greater potential for capital appreciation over the years.

Profitability and Returns

Growth alone cannot be used to see if the company will be valuable. Shareholders will be the losers if a company invest in ventures that aren’t profitable enough to support upbeat growth. In order for us to accurately measure profitability and return, we will be using the EBITDA margin and Return on Investment (ROI), which balances the difference in capital structure. SIG has an EBITDA margin of 12.59%, this implies that the underlying business of SIG is more profitable. The ROI of SIG is 15.00% while that of CMG is 12.60%. These figures suggest that SIG ventures generate a higher ROI than that of CMG.

Cash Flow



The value of a stock is ultimately determined by the amount of cash flow that the investors have available. Over the last 12 months, SIG’s free cash flow per share is a positive 5.21, while that of CMG is positive 0.82.

Liquidity and Financial Risk

The ability of a company to meet up with its short-term obligations and be able to clear its longer-term debts is measured using Liquidity and leverage ratios. The current ratio for SIG is 3.30 and that of CMG is 1.90. This implies that it is easier for SIG to cover its immediate obligations over the next 12 months than CMG. The debt ratio of SIG is 0.29 compared to 0.00 for CMG. SIG can be able to settle its long-term debts and thus is a lower financial risk than CMG.

Valuation

SIG currently trades at a forward P/E of 10.43, a P/B of 0.95, and a P/S of 0.38 while CMG trades at a forward P/E of 29.85, a P/B of 6.74, and a P/S of 2.07. This means that looking at the earnings, book values and sales basis, SIG is the cheaper one. It is very obvious that earnings are the most important factors to investors, thus analysts are most likely to place their bet on the P/E.

Analyst Price Targets and Opinions




The mistake some people make is that they think a cheap stock has more value to it. In order to know the value of a stock, there is need to compare its current price to its likely trading price in the future. The price of SIG is currently at a 3.74% to its one-year price target of 38.20. Looking at its rival pricing, CMG is at a 4.79% relative to its price target of 311.68.

When looking at the investment recommendation on say a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell), SIG is given a 2.90 while 2.90 placed for CMG. This means that analysts are equally bullish on their outlook for the two stocks stocks.

Insider Activity and Investor Sentiment

Short interest or otherwise called the percentage of a stock’s tradable shares currently being shorted is another data that investors use to get a handle on sentiment. The short ratio for SIG is 2.56 while that of CMG is just 3.18. This means that analysts are more bullish on the forecast for SIG stock.

Conclusion

The stock of Chipotle Mexican Grill, Inc. defeats that of Signet Jewelers Limited when the two are compared, with CMG taking 3 out of the total factors that were been considered. CMG happens to be more profitable, generates a higher ROI, has higher cash flow per share, higher liquidity and has a lower financial risk. When looking at the stock valuation, CMG is the cheaper one on an earnings, book value and sales basis. Finally, the sentiment signal for CMG is better on when it is viewed on short interest.

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