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Earnings: 2 Hot Stocks to Watch This Week

Earnings season is here. Banks kicked things off last week, and this week will include earnings reports from companies of varying industries. But two companies worth paying special attention to are Netflix (NASDAQ: NFLX) and Chipotle Mexican Grill (NYSE: CMG).

Over the past 12 months, Netflix shares are up 33% and Chipotle stock has nearly doubled. Now investors will look to these two hot companies' financial reports to see if their latest results continue to justify their premium valuations.

Image source: Getty Images.

Netflix

The big story to watch when Netflix reports is the company's subscriber growth. Management guided for 6 million new members during the period. But there's a lot of uncertainty about whether or not the company will be able to hit this target. Because Netflix saw abnormal subscriber growth in 2020 as consumers sheltered at home, there're concerns that some of these subscribers may have canceled their service as the economy reopens and they're subsequently not spending as much time at home.

Investors should also check on the company's operating margin. Netflix's operating margin has been steadily rising every year. In 2020, it rose five percentage points to 18%. For 2021, management is targeting a 20% operating margin. But it expects a 25% operating margin in Q1.

Netflix reports its first-quarter results after the market closes on Tuesday, April 20.

Chipotle

In 2020, the resilience of Chipotle's business was put on display. During a year that many restaurants struggled as consumers sheltered at home, Chipotle still managed to grow its revenue 7% year over year. Even more comparable restaurant sales, or sales at stores open 13 months or more, increased 1.8%.

Chipotle's momentum was particularly strong at the end of the year with fourth-quarter revenue growing 11.6% year over year and comparable restaurant sales rising 5.7%.

In addition to checking on Chipotle's quarterly revenue growth and its comparable restaurant sales, investors should look to see if the company managed to once again increase its restaurant-level operating margin on a year-over-year basis. In the fourth quarter of 2020, this key profitability metric was 19.5% -- up 30 basis points from the year-ago period.

Finally, investors should look to see how digital sales growth has continued to perform. The company's strong digital presence was a key reason Chipotle managed so well through the turbulence brought about by the pandemic last year. Total digital sales in 2020 increased 174% year over year. In Q4, digital sales rose 177%.

Investors should look for more triple-digit year-over-year growth in digital sales.

Chipotle reports its first-quarter results after market close on Wednesday, April 21.

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Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Netflix. The Motley Fool has a disclosure policy.


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