The S&P 500 (SNPINDEX: ^GSPC) bull market is still prancing about like a sprightly pony, and the index has a knack for trotting higher in August, delivering an average return of 0.6% since 1928, according to Yardeni Research. Of course, a long-term mindset is the golden ticket to success in the stock market, but there’s no harm in giving a cheeky wink to historical trends.
On that note, Chipotle Mexican Grill (CMG) and DigitalOcean (DOCN) are two stocks that Wall Street is whispering sweet nothings about.
- Among 38 analysts, Chipotle has a median target price of $59.50 per share. That implies 38% upside from its current share price of $43.
- Among 14 analysts, DigitalOcean has a median target price of $38 per share. That implies 40% upside from its current share price of $27.
Investors can snag a single share of both stocks for less than $100. Here’s why these stocks are worth a spot in your treasure chest.
Chipotle Mexican Grill: 38% Implied Upside
Chipotle’s second-quarter financial results were as disappointing as a soggy burrito. Revenue increased a measly 3% to $3.1 billion, when Wall Street was expecting a juicier 5% growth. Non-GAAP net income dribbled down 3% to $0.33 per diluted share. The pièce de résistance was the 4% drop in same-store sales, courtesy of fewer hungry folk wandering through Chipotle’s doors.
Same-store sales are like the pulse of a brand’s appeal, and Chipotle’s pulse was looking a bit faint. The stock took a 9% nosedive and landed at a 52-week low after the Q2 results were announced. But, dear reader, I reckon the market threw its toys out of the pram. This sell-off might just be a golden opportunity for patient investors.
Chipotle’s same-store sales decline in Q1 and Q2 is as rare as a unicorn sighting. The last time Chipotle saw a drop in same-store sales was five years ago, during the Covid-19 pandemic. I believe the recent drop in customer traffic is entirely due to economic jitters, not a loss of Chipotle’s charm.
Consumer sentiment hit rock bottom in three years following President Trump’s tariff blitz in April, according to the University of Michigan. This coincided with Chipotle’s business faltering. But consumer sentiment bounced back in June, and Chipotle CFO Adam Rymer noted a reacceleration in consumer traffic as the company rolled out summer marketing initiatives. The rebound continued into July, hinting at brighter days ahead.
Looking ahead, Wall Street expects adjusted earnings to grow at 16% annually through 2026. That makes the current valuation of 38 times adjusted earnings seem fairly reasonable. Chipotle currently trades at 5 times sales, a material discount to the three-year average of 6.4 times sales. Long-term investors should feel as snug as a bug in a rug buying a small position today.
DigitalOcean: 40% Implied Upside
DigitalOcean’s Q1 financial results were as delightful as a perfectly brewed cup of tea. Revenue increased 14% to $211 million, marking the second straight acceleration, thanks to strong demand for core cloud and artificial intelligence (AI) services. Non-GAAP net income hopped up 30% to $0.56 per diluted share.
The investment thesis for DigitalOcean is as simple as pie: While big public clouds like Amazon Web Services (AWS) and Microsoft Azure offer a grand buffet of cloud-computing services, their offerings are tailored for large enterprises with hefty IT departments. DigitalOcean simplifies cloud computing for individual developers and small businesses with click-and-go options, extensive technical documentation, and 24/7 customer support.
Importantly, DigitalOcean is riding the AI wave like a seasoned surfer. The company introduced a generative AI development platform earlier this year, allowing businesses to customize foundational models to build and deploy AI agents. It also introduced an AI-powered copilot to help businesses detect and resolve website issues.
Looking ahead, Wall Street expects the company’s earnings to remain flat through 2026, but I think analysts might have missed the boat. The International Data Corp. estimates that cloud-services spending among individual developers and businesses with fewer than 500 employees will increase at 22% annually to reach $250 billion by 2028.
Furthermore, DigitalOcean has beaten consensus earnings estimates by an average of 25% in the last six quarters, suggesting analysts may be lowballing future earnings growth. With the stock currently trading at a reasonable 13 times adjusted earnings, patient investors should feel as confident as a cat with a bowl of cream buying a small position today. 🐱
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2025-08-03 11:34