Amazon, Netflix, and Chipotle Mexican Grill: 3 Fast Growing Companies to Watch

These fast growing companies may provide excellent investment opportunities.

May 5, 2014 at 10:00AM

Investing legend Philip A. Fisher, who pioneered the "growth stock school of investing" once said, "I don't want a lot of good investments; I want a few outstanding ones". 

With that said, the increasing flight of consumer dollars from brick and mortar companies to e-commerce platforms  will bode well for companies such as online conglomerate Amazon (NASDAQ:AMZN) and online streaming and direct DVD rental service Netflix (NASDAQ:NFLX). Moreover, the increasing preference for fast casual dining serves as a boon for restaurant chains such as Chipotle Mexican Grill (NYSE:CMG). However, it always pays to look under the proverbial hood to check the fundamentals such as revenue, net income, free cash flow, and long-term debt as well as how much cash is retained on the balance sheet. If a company can't generate cash or if that cash goes toward paying interest on debt then you may want to shy away.


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The online mall
If you walk in a brick and mortar mall you may find clothing shops, art supply stores, toy shops, movie theaters, anchor stores at the ends of the building and maybe even a grocery store. Amazon wants to be your one stop shopping mall online where you can buy food, clothes, watches, books, and even watch movies via its streaming service made available through Amazon Prime. Amazon grew its revenue and net income 23% and 32% respectively in the most recent quarter. However, its free cash flow came in at a negative $3.6 billion during that time.

 Increased sales stemmed from increased movement of merchandise, price reductions for the customers, increased availability of inventory, and increased selections according to its latest 10-Q. Favorable currency and equity method investment gains contributed heavily to higher net income.  A huge payment in accounts payable and increased capital expenditures due to investment in its infrastructure resulted in the negative free cash flow.  On Amazon's balance sheet cash and long-term debt to equity ratios clocked in at 84% and 30% respectively last quarter. 


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Internet television network
Netflix calls itself the "world's leading Internet television network." The company rents DVDs by mail and streams movies and television shows online.
 Netflix grew its year over year revenue and net income 24% and 1,875% respectively in the most recent quarter. Furthermore, its free cash flow swung from a negative $45.6 million to a positive $8.1 million during that time.

 Subscriber growth contributed to the huge expansion in revenue while a research and development tax credit contributed to the astronomical gain in net income.  Favorable working capital differences and lower capital expenditures accounted for the positive free cash flow.  Netflix possesses a good balance sheet. Cash came in at an amazing 113% of stockholder's equity. However, it increased its long-term debt in the twelve months ending the last quarter pushing its long-term debt to equity from 38% to 61% respectively.  Investors should strive to look for companies with long-term debt to equity ratios below 50%. This may result in increased interest expense that could choke out future profitability and cash flow.


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Chipotle forges ahead
Fast casual Mexican restaurant Chipotle Mexican Grill opened 44 out of the roughly 180-195 restaurants it plans to open in 2014 during the most recent quarter. Its comparable store sales increased 13% during that time. Consumers are drawn to its high quality food and the "Food with Integrity" motto where the company sources from socially responsible vendors. Chipotle Mexican Grill's commitment to food quality and public relations translated into excellent fundamentals with revenue, net income, and free cash flow increasing 24%, 8%, and 49% respectively last quarter. The company sits on an excellent balance sheet with cash clocking in at 25% of stockholder's equity and no long-term debt. 

Now what?
Amazon investors should expect lumpy free cash flow in the near future as it continues to invest in its distribution, technological, and content infrastructure. Expect global adoption of online streaming video content, content partnerships, and increasing original content to serve as market opportunities for Netflix. Expansion, food quality, and the "Food for Integrity" program will serve as a draw to Chipotle Mexican Grill. Finally, high growth companies typically command a premium on the stock market meaning they succumb to extra volatility. Ease into these companies slowly and buy more in a market downturn. 

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William Bias owns a share of and Chipotle Mexican Grill. The Motley Fool recommends, Chipotle Mexican Grill, and Netflix. The Motley Fool owns shares of, Chipotle Mexican Grill, and Netflix. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

4 in 5 Americans Are Ignoring Buffett's Warning

Don't be one of them.

Jun 12, 2015 at 5:01PM

Admitting fear is difficult.

So you can imagine how shocked I was to find out Warren Buffett recently told a select number of investors about the cutting-edge technology that's keeping him awake at night.

This past May, The Motley Fool sent 8 of its best stock analysts to Omaha, Nebraska to attend the Berkshire Hathaway annual shareholder meeting. CEO Warren Buffett and Vice Chairman Charlie Munger fielded questions for nearly 6 hours.
The catch was: Attendees weren't allowed to record any of it. No audio. No video. 

Our team of analysts wrote down every single word Buffett and Munger uttered. Over 16,000 words. But only two words stood out to me as I read the detailed transcript of the event: "Real threat."

That's how Buffett responded when asked about this emerging market that is already expected to be worth more than $2 trillion in the U.S. alone. Google has already put some of its best engineers behind the technology powering this trend. 

The amazing thing is, while Buffett may be nervous, the rest of us can invest in this new industry BEFORE the old money realizes what hit them.

KPMG advises we're "on the cusp of revolutionary change" coming much "sooner than you think."

Even one legendary MIT professor had to recant his position that the technology was "beyond the capability of computer science." (He recently confessed to The Wall Street Journal that he's now a believer and amazed "how quickly this technology caught on.")

Yet according to one J.D. Power and Associates survey, only 1 in 5 Americans are even interested in this technology, much less ready to invest in it. Needless to say, you haven't missed your window of opportunity. 

Think about how many amazing technologies you've watched soar to new heights while you kick yourself thinking, "I knew about that technology before everyone was talking about it, but I just sat on my hands." 

Don't let that happen again. This time, it should be your family telling you, "I can't believe you knew about and invested in that technology so early on."

That's why I hope you take just a few minutes to access the exclusive research our team of analysts has put together on this industry and the one stock positioned to capitalize on this major shift.

Click here to learn about this incredible technology before Buffett stops being scared and starts buying!

David Hanson owns shares of Berkshire Hathaway and American Express. The Motley Fool recommends and owns shares of Berkshire Hathaway, Google, and Coca-Cola.We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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