Panera Crumbles

Panera Bread (Nasdaq: PNRA  ) stock has been on a roller-coaster ride this year, and its third-quarter earnings were no exception; after digesting the bad news, investors bid down the stock.

The company's reported earnings decreased to $10.9 million, or $0.34 per share, missing analysts' expectations for $0.35 per share. (Panera cited its new quarterly reporting calendar and the stock options it began expensing this year, so it's not exactly an apples-to-apples comparison.) Sales increased by a formidable 30%, to $205 million.

Panera said full-year earnings will come in at $1.92-$1.93 per share, less than Wall Streeet's estimate for $1.94 per share. The company's target for fiscal 2007 EPS growth is an impressive-sounding 22%-26%, with comps growth of 3%-5%.

Note that Panera didn't include a balance sheet or cash flow statement in its press announcement. (We'd really like to see more meat between those slices of bread.) However, there are still some interesting elements to consider. Panera's expenses ballooned, with operating margin dropping by four percentage points to 8%. While increased marketing and new products may help it over the long term -- Panera has been putting added focus on organic menu items, and the company noted its evening daypart initiative this quarter -- the proof remains to be seen. Investors will want to keep an eye on Panera's return on invested capital (ROIC), which is high but falling. For the long term, investors will need to know that the company's expenditures will generate strong returns.

Panera's getting punished today for its lower-than-expected forecast, arguably a good example of a premium-priced stock getting slammed on disappointment. But given some of the lingering questions surrounding the company, it's premature to think that Panera has the strong growth and long-term quality of other premium-priced stocks such as Starbucks (Nasdaq: SBUX  ) -- not to mention the essential differences that keep Starbucks appealing as a growth investment.

Panera's menu may be delicious, but right now, a wait-and-see approach makes the most sense for investors.

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Alyce Lomax owns shares of Starbucks. The Fool's disclosure policy tastes good and is good for you.