Is This Stock Baked?
Dan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Panera Bread (NASDAQ: PNRA) is a high-quality company that has been a consistent winner over the years. However, past results don't guarantee future success. And even if Panera is a good long-term investment, that doesn’t mean it’s the best option compared to its peers.
Expansion and costs
Between company-owned and franchised units, Panera has its name on 1,652 units throughout the United States and Canada. While the majority of these units are strategically placed in high traffic areas, there is still room for expansion. Panera is planning on opening 115 to 125 system-wide units by the end of the year. This, of course, will likely lead to top-line growth.
There will be costs associated with this expansion, but Panera has consistently delivered big profits, so these investments look to be worthwhile. Additionally, Panera owns a stellar balance sheet with no long-term debt. Panera might not pay a dividend, but this has allowed it to use extra capital for growth.
Panera’s success can be attributed to its varied menu, quality (and antibiotic-free) food, and customer loyalty. But some say atmosphere is its biggest point of difference.
If you have ever been a restaurant, then you must have seen people sitting at a table with a laptop, and some have been there for hours. These might be students studying for an exam, a professional preparing a presentation, or someone just getting away from home to communicate with friends via social networking sites.
Whatever the case may be, the atmosphere is comfy and cozy. And when people spend hours in one location, they get hungry and thirsty. Therefore, instead of a customer coming in and ordering once, eating, and then leaving, many Panera customers continue to make purchases during their visit.
This is a very similar concept to Starbucks (NASDAQ: SBUX). And it should come as no surprise that Starbucks has also been wildly successful through the years. More on Starbucks soon.
According to Glassdoor.com, where employees anonymously review and rate their employers, Panera has received a rating of 2.9 of 5. While this isn’t very good, the biggest complaint is long hours, which should be expected. If you read the reviews, there are actually more positives than negatives.
- Employees see Panera as highly innovative and customer-friendly.
- Employees also state that stores are always busy and never understaffed. I know, sort of a contradiction.
- Employees have even stated that managers are friendly and efficient, which is rare.
Aside from long hours, the only other negative that stands out is overpriced food. This is a positive as long as customers are willing to pay the premium. The question is whether or not this trend can continue when the consumer inevitably weakens. Then again, perhaps we already know the answer.
The consumer hasn’t exactly been strong over the past several years, yet Panera has continued to show top and bottom line growth. Another important point is that Panera was essentially unfazed by The Great Recession. At this point, it might seem as though an investment in Panera would be a no-brainer, but there is better.
Chipotle Mexican Grill (NYSE: CMG) can certainly be classified as great, considering its 176% ascent over the past 3 years. Chipotle’s organic food approach, combined with increased demand for Mexican food throughout the U.S., has helped it to impressive gains. Chipotle has seen superb revenue and earnings growth, and margins have been expanding. In addition to good-tasting Mexican food, Chipotle offers a comfortable atmosphere, a customizable menu, and affordability.
The only real concern for Chipotle is that it’s growing too fast. Apparently, many people feel this way considering its 11.60% short position. Chipotle is trading at 43 times earnings, making it expensive.
There is little doubt that Chipotle will be around for a long time and that it’s likely to increase market share. The only knock is the price of the stock.
Starbucks is another high-quality operation, with emerging market expansion, organic growth, inorganic growth through acquisitions, menu diversification, and top-notch management. One of the company’s most recent moves was to ink a deal with Danone so it can sell Greek yogurt under a line titled, “Evolution Fresh”. This might seem like a minor move, but once again, Starbucks is ahead of the curve. According to Nielsen, Greek yogurt’s market share has grown from 3.8% in 2010 to 29% in 2012.
Starbucks owns a stellar balance sheet, which means it will continue to open new locations and acquire brands. It's payout ratio of 38% is low, so its dividend of around 1%, should remain intact and even expand.
Panera, Chipotle, and Starbucks are all high-quality companies that are likely to enjoy long-term success. However, Panera's stock is currently in a free-fall. When this condition exists, you will be able to get it at a better entry point. If you’re interested in investing in Panera, then consider waiting until the selling is exhausted, often indicated by a flat stock price over a significant period of time.
Chipotle is a high-growth company, but expectations are high, which makes it a risky play. If you’re looking for the safest long-term play without sacrificing growth potential, then Starbucks might be the best option.
Tired of watching your stocks creep up year after year at a glacial pace? Motley Fool co-founder David Gardner, founder of the No. 1 growth stock newsletter in the world, has developed a unique strategy for uncovering truly wealth-changing stock picks. And he wants to share it, along with a few of his favorite growth stock superstars, WITH YOU! It's a special 100% FREE report called "6 Picks for Ultimate Growth." So stop settling for index-hugging gains... and click HERE for instant access to a whole new game plan of stock picks to help power your portfolio.
Dan Moskowitz has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill, Panera Bread, and Starbucks. The Motley Fool owns shares of Chipotle Mexican Grill, Panera Bread, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!