Peter Lynch liked to keep things simple. Arguably the greatest mutual fund manager of all time, some of Lynch's best investments were companies that were easy to understand. He would go with his family to the mall, coming home with retailer investing ideas. Lynch would speak to companies about their fiercest competition, and then try the rivals on for size.
Chipotle Mexican Grill (CMG -0.92%), Disney (DIS 0.34%), and Twilio (TWLO -1.92%) are three companies with businesses that are as easy to explain as they are to understand. They have been winning investments over the past year, too.
Chipotle Mexican Grill
Step into a Chipotle, and there's nothing to hide. The hungry belly up to the counter, walking down the assembly line as their bowls, tacos, and burritos are pieced together. Investors get an easy guide in sizing up the state of the chain. Comps dictate how sales are growing at the individual unit level, and margins make sure that Chipotle isn't sacrificing its markups in pursuit of drumming up transactions.
Chipotle's latest financial report was poetry in motion. Operating and net margin widened during the third quarter on a juicy 11% surge in comps. Chipotle owns most of its 2,546 restaurants, unlike many large chains that rely on franchisees to expand their reach -- and that's another thing that makes Chipotle easy to understand. The "Food with integrity" operator has greater control of its costs, tweaking its pricing along the way. There are a lot of things to keep in mind when investing in restaurant stocks, but Chipotle makes it as easy as it is to have your next barbacoa burrito assembled.
It's not a small world after all at Disney if we size up all of the media giant's assets. There are a lot of moving parts between the media networks, theme parks, and movie studios but they all come together to fuel this juicy ecosystem. A hit movie or television show can inspire theme park attractions and spur consumer product sales. A popular ride can spawn a theatrical franchise.
Disney's model is changing. The aggressively priced Disney+ streaming service that launches in two weeks will give it a new way to cash in on its decades of content. High-tech innovations are making its theme parks smarter. Yes, smarter. No one dominates the box office or theme park industry like Disney, and investors will know quickly if it starts to fall flat and its ecosystem runs dry.
It's not just consumer-facing brands that are easy to understand. Twilio isn't a household name, but it's the top provider of in-app communication solutions, giving mobile developers the tools to make their applications more engaging and ultimately useful. When your ridesharing service has arrived, that's Twilio at work. When your Handy housekeeper is checking in with a masked phone number to protect both sides of the transaction, that's Twilio in action.
Business is picking up. Revenue has accelerated for six consecutive quarters, more than doubling in that time to a blistering 86% top-line surge in its latest report. You don't have to know how to code to gauge Twilio's success. It puts out its dollar-based net expansion rate every single quarter, a metric that dictates how much existing customers are spending than they were a year earlier. If you're clocking in north of 100% you're growing with those clients, and Twilio checked in with a net expansion rate of 140% in its latest report. Twilio is making your apps better, and investors have been rewarded with monster gains in the process.