Chipotle (NYSE:CMG) has done a fantastic job expanding their restaurants across the U.S. and now the globe. Chipotle has been able to expand at lightening speed because the company reinvests cash flow into operations rather than paying off huge bills to creditors.
As long time Wall St. Cheat Sheet readers know, an ‘Equity to Debt Ratio is Close to Zero’ is one of the ‘E’s in our CHEAT SHEET investing framework. This single part of our investing framework may also be the most powerful when added to only one or two other outstanding company qualities such as a ‘Catalyst for a Stock’s Movement’.
Investing Insights: Steve Jobs Prepares to Deliver a New Catalyst for Apple’s Stock.
If a business model becomes a cash printing machine and that cash can go to shareholders or the business rather than creditors, stock prices have the potential to sparkle. In the case of Chipotle, the stock has exploded from $39 a share at the bottom of the market crash in 2008 to over $335 a share in July 2011 (a ~760% return). This is not simply a rebound off the bottom. For example, over the same time period shares of fast food chain Jack In The Box (NASDAQ:JACK) merely appreciated from $15 to just over $21 (a ~40% return).
Unlike competitors saddled with debt payments, Chipotle has been able to execute the McDonald’s (NYSE:MCD) growth plan ahead of schedule. Just last month Chipotle CEO Steven Ells told shareholders the company is doing so well, they are going to increase their global expansion beyond London (NYSE:EWU) to other hot spots across Europe. Such growth should continue rewarding Chipotle shareholders and prospective customers across the world as Chipotle adds to its $10 billion market cap. That means Chipotle will see a lot of smiling faces on more people than just a handful of creditors extracting pounds of flesh.