5 Stocks Geared for Growth

A stock's price follows its earnings, which in turn follow its sales. A company needs only to take care of its business for investors to profit in the long run.

With that in mind, examining companies whose revenues and profits are rising -- and which inspire analysts' confidence in continued future growth -- should give us a fertile field in which to discover solid candidates for long-term outperformance.

The roaring 20s
Below are a handful of companies that have enjoyed 20% or more annual growth in sales and earnings over the past three years, and for which analysts forecast total growth of 20% or more over the next two years. We'll then pair up those predictions with the community stock research at Motley Fool CAPS, to get an idea of which companies the 140,000-plus members think have the best chances of beating the market over the long haul.

Source: CapitalIQ, a division of Standard & Poor's; Motley Fool CAPS.

Just because an analyst predicts that a company will feature fantastic growth opportunities doesn't mean those predictions will become reality. But their preferred picks do offer an excellent starting place for your own research into extreme buying opportunities, so let's see why the operations of some of these companies may or may not be held in high esteem by investors considering they appear to be sales and profits machines.

Tippling at the speakeasy
Fast-food eateries Burger King (NYSE:BKC) and McDonald's (NYSE:MCD) were paragons of frugal dining in the early part of the recession, but the proliferation of discounted menus at casual dining restaurants and the grinding levels of unemployment have cast even their value propositions into doubt. When all is said and done, eating at home still offers the cheapest option for diners.

Burger King's sales fell 5% last quarter and profits fell into the fat fryer, off 6%, missing analyst expectations. Chipotle Mexican Grill served up tastier fare in comparison -- net income jumped 77%, sales were up 14%, and even comps rose more than 2% -- its shares were causing indigestion, giving back about 10% of their value just after earnings.

That could be due to the premium the stock has carried compared with its rivals. Chipotle trades at 24 times trailing earnings and 21 times forward estimates while other fast food and casual dining options go for much less:

Source: Yahoo! Finance.

What also might be causing some investors to reach for the Pepto, at least temporarily, is Chipotle's decision to rejigger its outstanding stock. Currently it has two classes of shares and the B's carry some superior terms, such as 10 times greater voting rights. Management wants to convert both classes into a single class on a one-to-one basis, and since the proposal was announced in mid-October, Chipotle's A shares have fallen, while the B's have stayed about flat. The disparity between the two classes has virtually disappeared now, so those investors wanting to play arbitrageur will have to find other instances of inequality to exploit.

The transaction does present some risks for current shareholders, however. Since the conversion is a change in its certificate of incorporation, a certificate implemented when Chipotle was spun off from McDonald's, it could result in a huge tax liability. If the IRS decides the spinoff is a taxable event, Chipotle estimates that it could cost in excess of $450 million and "may be much greater."

The Mexican-food chain has received an opinion from its advisors that the conversion should be OK, but the IRS has yet to issue one. That might be a nasty surprise ruling.

Still, CAPS member DanteSparda thinks the addictive quality of Chipotle's food is the secret weapon that should keep customers coming back and its operations munching away at growth.

Solid 3rd quarter earnings and the burritos they sell are as addictive as crack. This price this stock is going for is a discount compared to what it was going for the last few months.

Although various metrics may have fallen from the year-ago period, Chipotle has held up well in this recession, perhaps earning the premium it carries. As a result, I'm going to dine on the fast food purveyor and go long on Chipotle's CAPS page.

No Great Depression
How about you? Would you buy Chipotle Mexican Grill at today's prices? Let us know in the comments section below.

It pays to start your own research on these stocks on Motley Fool CAPS. Read a company's financial reports, scrutinize key data and charts, and examine the comments your fellow investors have made all from a stock's CAPS page. Why not head over to the completely free CAPS service and let us hear what you've got to say about these or any other stocks that you think we should fill up our dance card with?