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3 Rising-Margin Stocks with Strong Growth Potential

Domino's Pizza logo detail on a recycled pizza box.

Key Points

  • Three stocks are jumping on a wave of technology implementation to boost their margins and bottom-line earnings, driving new analyst upgrades.
  • Other factors, such as momentum, are at play to push the sentiment in these names, such as 12-month price action and new institutional buyers.
  • Short sellers recognize the potential upside in these stocks, as seen in the recent decrease in short interest levels.
  • 5 stocks we like better than Chipotle Mexican Grill.

Some businesses go through cycles of expanding and contracting margins, such as basic materials names that depend on commodity prices to derive their bottom-line figures. Then, there are those who enjoy a continuous uptrend in their margins through the use of efficiency, a typical trend that dominates the technology sector with scalability and operational leverage.

Then, there are those who operate in the old model and have yet to jump into the new model through technology. This is where today’s list of stocks with rising margins, through technology implementation, can be a helpful frame for investors to keep in mind when making their subsequent investment decisions, especially in today’s economy.

As the threat of inflation looms in the back of economist’s heads, investors should start to consider buying shares of retail companies with rising margins to outpace inflation, brought to reality by the use of technology. Such names include Domino’s Pizza Inc. NYSE: DPZ, Shake Shack Inc. NYSE: SHAK, and even Chipotle Mexican Grill Inc. NYSE: CMG. All three of these names share one thing in common: rising digital sales to improve margins.

Wall Street Analysts Predict Double-Digit Upside for Domino's Pizza Stock

Even though this stock has stood the test of inflation concerns and delivered up to 19% in performance over the past 12 months alone, Wall Street analysts still think the company could deliver another round of double-digit upswings in the coming months.

Domino's Pizza MarketRank™ Stock Analysis

Overall MarketRank™
94th Percentile
Analyst Rating
Moderate Buy
Upside/Downside
16.2% Upside
Short Interest Level
Healthy
Dividend Strength
Strong
Environmental Score
-2.39
News Sentiment
0.74mentions of Domino
Insider Trading
Selling Shares
Proj. Earnings Growth
4.82%
See Full Analysis

The reasoning behind these analysts may be as simple as it gets, driving those at Benchmark to reiterate their Buy rating on Domino’s Pizza stock and place one of the highest price targets of the group at $520 a share. Domino’s Pizza stock would have to rally by as much as 22% from today’s price to prove these new ratings right.

One reason for this renewed bullish sentiment is the company’s business model, which relies heavily on its affordability proposition to customers and its ability to maintain ingredient quality through margin expansion.

Looking into Domino’s Pizza stock’s financials, investors will notice one main trend in the company’s gross margins: They have gone from 31% in the pre-COVID period to a high of 38.6% in post-COVID times. This is all because they have achieved a higher percentage of sales coming from their digital channels, allowing for fewer costs and less overhead to go into each transaction.

Bears know how vital these businesses will be for investors moving forward, so they have started to decrease their short exposure in Domino’s Pizza stock, as judged by the 7.6% decline in short interest over the past month alone.

Shake Shack Stock: Why Analysts See Further Upside Despite Recent Rally

The trend starts to form for Shake Shack stock as well, considering it has already rallied by over 112% in the past 12 months to outperform every single competitor in the space. It has been able to achieve this, and that same reason sets it up for another potential double-digit run.

Shake Shack MarketRank™ Stock Analysis

Overall MarketRank™
45th Percentile
Analyst Rating
Hold
Upside/Downside
10.8% Downside
Short Interest Level
Bearish
Dividend Strength
N/A
Environmental Score
-2.23
News Sentiment
0.25mentions of Shake Shack in the last 14 days
Insider Trading
Selling Shares
Proj. Earnings Growth
41.46%
See Full Analysis

As of November 2024, analysts at Truist Financial have kept their Buy rating on Shake Shack stock. This time, however, they boosted their valuations up to $144 a share for the company, a significant boost from the previous $127 view. They call for an additional net upside of as much as 14% from where the stock trades today.

That’s not all for the bullish evidence that has stacked up in favor of Shake Shack’s future, though; short sellers realize that Shake Shack’s growing digital sales as a share of net revenue poses a potential run to the upside coming soon, so they also decreased their short positions by 6.1% during the past month alone.

Driving the fear to the bears, Wall Street analysts now project up to $0.36 in earnings per share (EPS) in Shake Shack for the next 12 months, significantly higher than today’s $0.25 level, to justify the upside being predicted for the name.

Chipotle Stock Gains Favor with Institutions as Expanding Margins Fuel Growth Potential

Last but not least, Chipotle stock’s 38.2% rally over the year speaks to the company’s ability to deliver this upside under the right conditions. These conditions are just as present today as they were 12 months ago and are mostly found in the company’s financials.

Chipotle Mexican Grill MarketRank™ Stock Analysis

Overall MarketRank™
88th Percentile
Analyst Rating
Moderate Buy
Upside/Downside
8.1% Upside
Short Interest Level
Healthy
Dividend Strength
N/A
Environmental Score
-1.96
News Sentiment
0.20mentions of Chipotle Mexican Grill in the last 14 days
Insider Trading
Selling Shares
Proj. Earnings Growth
18.02%
See Full Analysis

Chipotle’s gross profit margin stood at an average of 68% before COVID-19, and it now sits at around 70.5%, which shows the efficiencies being implemented by technology and its growing share of digital sales today.

More than that, the National Pension Service has lately decided to add to the institutional buying pressure in the stock.

By boosting their position by as much as 13.7% as of October 2024, they now hold up to $207.4 million worth of Chipotle stock today. This adds to the buying pressure that could come during higher inflation periods in the U.S., helping Chipotle stock get to the upside projected by Wall Street analysts today.

Should you invest $1,000 in Chipotle Mexican Grill right now?

Before you consider Chipotle Mexican Grill, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Chipotle Mexican Grill wasn't on the list.

While Chipotle Mexican Grill currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

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Gabriel Osorio-Mazilli
About The Author

Gabriel Osorio-Mazilli

Contributing Author

Value Stocks, Asian Markets, Macro Economics

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Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Chipotle Mexican Grill (CMG)
4.4012 of 5 stars
$61.58-0.5%N/A57.32Moderate Buy$66.55
Domino's Pizza (DPZ)
4.6927 of 5 stars
$426.54+0.1%1.42%26.20Moderate Buy$495.76
Shake Shack (SHAK)
2.2286 of 5 stars
$129.50+0.5%N/A761.76Hold$115.56
Chipotle Mexican Grill (CMG)
4.4012 of 5 stars
$61.58-0.5%N/A57.32Moderate Buy$66.55
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