This Stock Should Continue to Power Higher

Dave 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) operates restaurants/cafes in the U.S. and Canada. Its growth has not only been good, but it has been consistent. Take a look at this multi-year chart below. It doesn't get much cleaner and consistent than this.

<img alt="" src="http://media.ycharts.com/charts/6cf60fd885e7ebaafe0406dc5ac680a9.png" />

In fact, the company has also produced stable and increasing cash flow from operations and Return on Equity (ROE). It's tough for these two metrics to lie, especially when you look at a long-term trend. A company may be able to game a quarter or two to make things look nice, but when cash flow from operations and ROE are this pretty for four years, you know it's the real deal.

<img alt="" src="http://media.ycharts.com/charts/aa090bb94bbf261a54a398955e193902.png" />

Valuation

Panera's P/E of 31.4 is a bit high. But remember, you generally have to pay some premium for a company that is growing like Panera and is as consistent as it has been. Also keep in mind that Panera has no long-term notes for an investor to worry about. That also is worth paying a small premium. 

Dividend

Unfortunately, Panera doesn't give us a dividend. But its growth history and potential are stellar and provide investors a lot of comfort. They are nowhere near saturation in the U.S. and have barely scratched the surface of their market potential in Canada. Someday, they may head overseas, but that is not necessary yet to drive continued growth. The domestic market still provides ample opportunity for Panera to give investors excellent returns.

Alternative #1: Starbucks

If you'd like another alternative, but a similar enough company, then look at Starbucks (NASDAQ: SBUX). Over the past couple of years, Starbucks has returned to its roots as a reliable growth story after spending a couple years of struggling to grow.

Now, Starbucks is planning an increasingly aggressive expansion overseas to juice its earnings and send the stock price through the roof. In particular, the expansion in Asia is the most interesting given how big a market it is and the fact that Starbucks has generated double-digit comps for eleven straight quarters.

If the solid U.S. results and huge potential in Asia aren't enough, Starbucks is also expanding through acquisitions in Teavana, LaBoulange, and Evolution. All of these food and tea products figure to provide additional profits and growth, especially once Starbucks has a chance to apply its business expertise to these relatively young companies.

Valuation

Investing in Starbucks doesn't come cheap. It has a ton of potential, but you pay for that with a P/E of 32.3. The good news is that revenue continues to grow at a double-digit clip, all while cash flows from operations continue to rise.

Dividends

There may be nothing better than a stock that not only gives you high-growth potential, but also provides a solid dividend while you wait. The aforementioned 32.3 P/E can be tough to stomach since it prices-in much of Starbucks' potential. However, now that Starbucks provides a 1.30% dividend yield, it's a little easier to buy and hold through any ups and downs to get those regular dividend payments.

Alternative #2: Dunkin' Brands

Dunkin' Brands (NASDAQ: DNKN) operates Dunkin' Donuts and Baskin Robbins locations worldwide. Since going public again in 2010, Dunkin' Brands is up 53%, beating the S&P 500's total return of 31%.

<img alt="" src="http://media.ycharts.com/charts/b47bf2d72fd320c9ff7c96659c1b6deb.png" />

Dunkin' spent years closing locations and getting its business in order to prepare for an expansion back into the same markets it exited. That time of expansion has come. Dunkin' has headed west again to fill the country with donuts, coffee, and ice-cream. This growth has allowed Dunkin' Brands to outperform the broader market and should allow the company to continue such strong performance going forward. Keep in mind that it is just now starting to re-open in California. Successfully growing back into California alone would propel the stock higher.

Need an extra incentive? How about the 1.80% dividend yield that Dunkin' provides while it continues its regrowth? That comes close to the 2% dividend that the SPY is giving you right now and while also providing a business that has a heck of a lot bigger growth opportunity.

Bottom line

Panera has been consistent for a long time. Starbucks and Dunkin' Brands have started to come back in a big way over the past few years. All of these stocks have growth potential ahead of them. Panera and Dunkin's growth will likely be more organic. Starbucks will still have organic growth in other parts of the world, but is also expanding through acquisitions domestically.

I like all three of these companies. They all trade at premium P/E's, so a pullback would be nice. The long-term outlook for all is positive.

Investors can be forgiven for thinking that a company that has returned almost 2,500% since going public probably has its best days behind it. But in the case of Panera Bread, there's reason to believe that the best is still yet to come. The stock has been on an absolute tear over the past five years, and you're invited to find out why -- and what else there is to look forward to -- in The Motley Fool's brand-new premium report on Panera. Included are key areas that investors must watch, as well as opportunities and threats facing the company both today and in the long term. Don't miss out on this invaluable investor's resource -- simply click here now to claim your copy today.


Dave Zaegel has no position in any stocks mentioned. The Motley Fool recommends Panera Bread and Starbucks. The Motley Fool owns shares of 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!

blog comments powered by Disqus