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Trade-Ideas: Chipotle Mexican Grill (CMG) Is Today's Momo Momentum Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Chipotle Mexican Grill ( CMG) as a momo momentum candidate. In addition to specific proprietary factors, Trade-Ideas identified Chipotle Mexican Grill as such a stock due to the following factors:

  • CMG has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $196.6 million.
  • CMG has a PE ratio of 54.3.
  • CMG is currently in the upper 30% of its 1-year range.
  • CMG is in the upper 25% of its 20-day range.
  • CMG is in the upper 35% of its 5-day range.
  • CMG is currently trading above yesterday's high.
  • CMG has experienced a gap between today's open and yesterday's close of 0.6%.

'Momo Momentum' stocks are valuable stocks to watch for a variety of reasons including historical back testing and price action. Market technicians refer to such stocks as being in a mark-up phase before a possible distribution period and price decline. Technical analysts and traders frequently find that the factors referenced above tend to create a temporary burst of strong wind in a stock's sail. Nevertheless, all successful traders must excel at maximizing gains while keeping losses to an absolute minimum. For that reason, the holding period on momo momentum stocks must always be a primary consideration, and this part of the puzzle is ultimately at the discretion of each individual's risk tolerance and portfolio risk management skills.

EXCLUSIVE OFFER: Get the inside scoop on opportunities in CMG with the Ticky from Trade-Ideas. See the FREE profile for CMG NOW at Trade-Ideas

More details on CMG:

Chipotle Mexican Grill, Inc. develops and operates fast casual and fresh Mexican food restaurants. Its restaurants primarily offer burritos, tacos, burrito bowls, and salads. As of October 15, 2013, the company operated approximately 1,500 restaurants. Chipotle Mexican Grill, Inc. CMG has a PE ratio of 54.3. Currently there are 10 analysts that rate Chipotle Mexican Grill a buy, 1 analyst rates it a sell, and 10 rate it a hold.

The average volume for Chipotle Mexican Grill has been 400,000 shares per day over the past 30 days. Chipotle Mexican Grill has a market cap of $16.6 billion and is part of the services sector and leisure industry. The stock has a beta of 0.55 and a short float of 10.8% with 7.29 days to cover. Shares are up 80.3% year to date as of the close of trading on Tuesday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12-months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Chipotle Mexican Grill as a buy. The company's strengths can be seen in multiple areas, such as its robust revenue growth, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share, increase in net income and notable return on equity. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

Highlights from the ratings report include:

  • The revenue growth came in higher than the industry average of 0.8%. Since the same quarter one year prior, revenues rose by 18.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • CMG has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. Along with this, the company maintains a quick ratio of 3.04, which clearly demonstrates the ability to cover short-term cash needs.
  • CHIPOTLE MEXICAN GRILL INC has improved earnings per share by 17.2% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, CHIPOTLE MEXICAN GRILL INC increased its bottom line by earning $8.75 versus $6.76 in the prior year. This year, the market expects an improvement in earnings ($10.45 versus $8.75).
  • The net income growth from the same quarter one year ago has exceeded that of the Hotels, Restaurants & Leisure industry average, but is less than that of the S&P 500. The net income increased by 15.3% when compared to the same quarter one year prior, going from $72.30 million to $83.38 million.
  • Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 92.41% over the past year, a rise that has exceeded that of the S&P 500 Index. We feel that the stock's sharp appreciation over the last year has driven it to a price level which is now somewhat expensive compared to the rest of its industry. The other strengths this company shows, however, justify the higher price levels.

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