Inflation-Resistant Pricing Power Makes this Company Likely to Keep Rallying

Investors are looking for how companies are navigating the worst environment for inflation in 25 years. Many companies are doing well, having found ways to cut costs, or raise prices without losing out on sales. Some of the best companies do a little bit of both.

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  • That’s the case with Chipotle Mexican Grill (CMG). The company reported solid earnings, as higher costs were offset by higher menu prices, allowing the company to report earnings of $7.02 per share, beating estimates of $6.32.

    The company already warned customers back in June that menu items would rise 4 percent on average, but customers clearly didn’t mind. Shares are up 37 percent over the past year, a slight gain over the S&P 500’s return in the same time. However, the stock is still about 6 percent off its all-time highs.

    Action to take: With earnings up nearly 40 percent over the past year, and earnings growth up a staggering 2,200 percent, the company may soon reach new all-time highs. Shares don’t currently pay a dividend, but investors can likely continue outperforming the S&P 500.

    For traders, the high share price makes options trading difficult but not impossible. The March $2,300 calls, last going for about $17.00, could deliver mid-double-digit returns before expiration, particularly if shares see a strong year-end rally from here.

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    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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