My 'Bucket List' of Stocks
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
One of my favorite guilty foods is Buffalo wings. It’s on my unofficial bucket list to try all the variety of wings at Buffalo Wild Wings. Not an ambitious goal but certainly more doable than a Pulitzer Prize. And with the success they’ve had these last few years many people don’t feel guilty at all about downing copious quantities of beer and chicken wings.
Love Them Wings
In the fast casual dining sector Buffalo Wild Wings (NASDAQ: BWLD) is still considered an up and comer. Surprisingly it is headquartered in Minneapolis not Buffalo NY. They operate 835 restaurants in 48 states and Canada. The company is 20 years old and has plans to double the number of restaurants within five years. The investment club at my daughter’s college was interested in the stock so she asked me what I thought. Little did she know, I was already looking at Chipotle. Then I thought I should look at Panera Bread Co (NASDAQ: PNRA) too.
Buffalo Wild Wings should be in five years where Panera is now just by looking at the numbers. Although they are about the same age, Panera bread has twice the number of restaurants. Looking at their statistics and jumping from screen to screen it’s quite eerie how alike they are. Both have zero debt, both have institutional ownership in the low 80’s, both have no yield, Panera has a PEG ratio of 1.33 and Buffalo Wild Wings of 1.31. Buffalo Wild Wings has quarterly earnings growth YoY of 22.8% and Panera of 25.70%. Then their cash per share is $3.85 for Buffalo and $7.59 for Panera. Buffalo’s beta is .88 and Panera’s is .81
Then come a few differences. Although the short interest is much higher in Buffalo Wild Wings, at 14% of the float, it has performed almost twice as well as a stock, up 21.64% versus Panera’s 11.79%. Why is a company with almost half the market cap and more than twice the short interest performing almost twice as well? And stranger than fiction they both hit their 52 week highs on March 27. Working on this was almost like those conspiracy theorists that tie many disparate threads together to form their worldview, but these are just two restaurant stocks. Lighten up already.
Personally I think Panera may have hit a market saturation tipping point. It’s a nice place to go for a healthy soup and sandwich and it’s pleasant, but there are already two within 15 miles of me with a third to be built shortly and that is the same as the number of Chipotles in that geographic range. There’s only one Buffalo Wild Wings within 15 miles and in what I think is a good strategy it is built in a neotraditional neighborhood type development and not near a college campus. Buffalo Wild Wings' original strategy was to build near the big sports college towns, but I’m sure they realized there were three months of the year that weren’t being monetized. The one near me has the many screens with all kinds of sports, a long bar with hundreds of beers available but is also family friendly. Beer, wings and sports .. who doesn’t like at least one of those or all three? And anyone in the restaurant business can tell you the real money comes from booze. As they say it’s always happy hour somewhere and somewhere people are watching sports.
As much as I believe in the long term trend toward healthier eating I still like my guilty pleasures. In some ways Buffalo Wild Wings is a ‘sin’ stock (just because it’s a guilty pleasure to me) but is led by wholesome and capable CEO Sally Smith who by the way takes home half the pay of Panera CEO Ronald Shaich.
Who’s Sneaking Up on Panera
There’s another reason I worry about Panera Bread and that is Starbucks (NASDAQ: SBUX). Starbucks doesn’t pose a threat to Buffalo Wild Wings as they offer totally different experiences, but with Starbucks’ recent acquisition of Bay Bread which owns the San Francisco bakery chain La Boulange, that hints at plans to expand the sandwich and baked goods offerings over the next few years. I see the moat coming down around Panera. Starbucks has also expanded to teas and juices. In a few years it will be more of a fast casual dining experience like Panera.
Starbucks hit their 52 week high of $62.00 on April 16 and like the others has come down since then. Increases in commodities over the last few weeks may be scaring off skittish investors, but all three have been able to maintain price hikes without much squawking from customers. I can’t imagine what the chickens at Bufffalo Wild Wings might say about it.
Starbucks is of course the alpha dog of these three. It has a market cap of 39.6 billion compared with 4.17 billion for Panera and 1.54 billion for Buffalo Wild Wings. Starbucks does have a yield of 1.30% and has worldwide brand recognition. It has 10,787 stores in the US and over 6,000 internationally. It also has a presence on grocery store shelves. I think Buffalo Wild Wings could eventually partner up with someone to offer frozen wings at the grocery store, too, but Panera probably could not translate their offerings that way except for the soups, maybe. Starbucks has a slightly higher beta of 1.06 but has outperformed the other two up more than 33% over the last year. Starbucks also has the lowest short interest of the float at 1%. The PEG ratio is at 1.4. They have $2.95 cash per share, but they do have debt of 549.6 million. Starbucks is slightly less popular with institutions at a 78% hold.
Big Growth or Little Growth
If you want big growth you might consider little Buffalo Wild Wings as it has the most room to expand and attract new customers. Its numbers are similar to Panera’s and while Panera has had an amazing run these last few years as has Chipotle, there’s probably more upside with Buffalo Wild Wings.
However, if you want a yield and some international exposure as well as an ambitious expansion of offerings you might want to go with Starbucks. Have yourself some fun and visit each one and decide which one is more to your portfolio’s taste. Eat a wing in my honor.
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Buffalo Wild Wings, Panera Bread, and Starbucks. Motley Fool newsletter services recommend Buffalo Wild Wings, 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.If you have questions about this post or the Fool’s blog network, click here for information.