We Americans pride ourselves on being hardworking, untiring, and indefatigable grinders in today's workforce. It's time we look ourselves in the mirror and admit this could not be any further from the truth. We are lazy! Researchers have found that we are getting about 177 leisure hours a week in 2012 (including sleep) versus 110 in 1967. Do the math: that means we have become 38% lazier in only 47 years! If that doesn't prove it, look at the chart below of other countries' average work week compared with ours.
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Not only are we lazy, we love things that are simple. The two basically go hand in hand. Deny it as you may, but even investors can get lazy and look for simple stories and places to put their money to work. Chipotle Mexican Grill, Inc. (CMG) is a perfect example because it's a burrito shop; its business model is downright easy to understand and its a story anyone can wrap their hands around. People love telling their buddies they own this stock. You walk into a Chipotle store and you know exactly what the company does. It sells burritos, burrito bowls, tacos, and salads made with "naturally-sourced" ingredients and that's it. It's simple.
The company boasts some of the best margins in its industry and over the last three years, had a revenue growth of around 20% and an EPS growth of 42%. Both of these numbers continue to increase year over year and Chipotle continues to become more efficient as it grows towards maturity. As a result of Chipotle having the financials to back up its story, people have fallen in love with the stock and pushed it up to a very expensive 53 times earnings.
To prove that even investors can get lazy, let's look at another company that has similar performance to Chipotle, but drastically different valuations. Teva Pharmaceutical Industries Limited (TEVA) develops, manufactures, and sells pharmaceutical products worldwide. It offers generic pharmaceutical products in various dosage forms, including tablets, capsules, ointments, creams, liquids, injectables, and inhalants; and provides basic chemical entities, as well as specialized product families, such as sterile products, hormones, narcotics, high-potency drugs, and cytotoxic substances. This story of its operations doesn't sound as simple and sexy as Chipotle's, does it? Below is a chart that compares the two companies on a few key statistics.
The two are very similar in almost every category, Teva Pharmaceutical even pays a dividend, but Chipotle's valuation is over four times that of TEVA. How could this be? Given below is a look at the companies' income statement performance over the last five years.
The trend between the two companies looks almost the same, yet Chipotle is a much more expensive stock. Could it be that since Teva Pharmaceutical's operations and business plan are much more sophisticated that investors would rather focus their efforts on a simpler story? Deny it as you may, but this could very much be the case.
I am not suggesting to go out and buy Teva instead of Chipotle. I am simply saying it's okay to dig a little deeper. Companies that are super expensive like Chipotle are so hard to say no to because their story is so simple. I am as guilty as anyone else. I love a simple story. But I think it's important to realize that it is okay to go off the beaten path and look for hidden gems. Most of the times, these gems will be harder to find, but can be much more rewarding than investing in the same stocks and simple stories everyone knows about.