Earnings: 2 Hot Stocks to Watch in July – Motley Fool

A streaming-TV company and a fast-casual food specialist could take the spotlight.

Earnings season is almost here. Companies operating on a calendar year wrapped up their second quarters last week, leaving accounting and finance teams to tie up the quarter’s books and prepare their earnings reports. It’s fair to say that 2020 and 2021 have provided investors with some incredibly interesting earnings reports, as they’ve provided timely windows into operations of businesses during a period of unique circumstances and significant uncertainty.

While the U.S. economy is finally beginning to resemble something closer to normalcy, Q2 2021 was still chock-full of its own unique circumstances, including global supply and logistical challenges, high unemployment rates, and unusual year-ago comparisons. Two companies worth watching as we start to unpack the quarter and try to understand how organizations fared are Chipotle Mexican Grill (NYSE:CMG) and Netflix (NASDAQ:NFLX) — two stocks that have jumped sharply over the past month. Can these two hot stocks deliver results that live up to investors’ high expectations?

Here are some key items investors should watch when these two hot companies report earnings.

A chart showing two stocks rising.

Image source: Getty Images.

Chipotle: Are digital sales still soaring?

Chipotle enjoyed huge sales growth in Q1 as the company benefited from both good business execution and an easy comparison. Part of Q1 2020 was negatively impacted by challenges brought on by the beginning of the COVID-19 pandemic in the United States. Revenue during the first quarter of 2021 increased 23.4% year over year, helped by 35 net new stores and a 17.2% increase in comparable restaurant sales. 

But the one particularly impressive metric from the quarter was the 134% year-over-year increase in digital sales Chipotley served up. This put total digital sales at 50% of total sales during the period. Investors should look to see if Chipotle was able to keep up this strong momentum in digital in Q2. Of course, it’s reasonable to expect a deceleration in digital sales growth in Q2 as the company will be up against a period in 2020 in which COVID-19 lockdowns meant more than half of sales took place digitally. Digital sales grew 216% year over year in the second quarter of 2020, representing 61% of total sales. 

Nevertheless, the company’s strong momentum in digital suggests Chipotle is still positioned to post record digital transactions during Q2.

Chipotle will report its second-quarter results after market close on July 20.

Netflix: Can it overcome tough comps?

Reporting its earnings on the same day as Chipotle, Netflix is up against some extremely tough year-ago comparisons. The streaming-TV service‘s subscriptions surged during the second quarter of 2020 as people looked for ways to stay entertained at home. Netflix added more than 10 million new subscribers during the period, bringing total subscribers during the first half of 2020 to nearly 26 million. For context, Netflix added only 28 million subscribers during the entire year of 2019. 

Netflix management thinks a lot of demand for streaming was pulled forward to 2020, helping explain why Netflix added just 4 million subscribers in the first quarter of 2021. Furthermore, the company is only guiding for one million new subscribers in the second quarter of 2021.

But investors should also look to management’s guidance for the third quarter of 2021, as investors are likely hoping for more normalized growth during the period.

Investors can find the two companies’ earnings reports on their investor relations webpages after market close on Tuesday, July 20.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

Daniel Sparks has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Netflix. The Motley Fool has a disclosure policy.