This article is part of our Rising Stars Portfolio series.
Panera Bread's
According to the Associated Press, after opening three "pay-what-you-want" cafes a year ago, Panera says the experiment has proven itself an expansion-worthy success.
Keep in mind that Panera has an unusual definition of "success." These particular cafes are nonprofits. They don't help Panera's bottom line, but instead help feed hungry people and raise money for charity. In another success for this model, Panera found that most people don't take advantage, and do in fact pay appropriate amounts. Sometimes, they're even more generous.
The three experimental, non-profit cafes are located in Clayton, Mo., Dearborn, Mich., and Portland, Ore. Panera now plans to expand the concept, adding a new restaurant following this giving-back model every three months or so.
As an investor, companies that excite me most intend to do well and do good; my Rising Stars portfolio is designed with social responsibility in mind. That universe includes stakeholder-friendly companies like Starbucks
To me, Panera's "pay-what-you-want" experiment is a bold, compelling, and inspiring move. I've long been aware that Panera has altruism at heart. It donates unsold baked goods to food banks and charities at the end of each business day, just for starters. Adding pay-what-you-want cafes into its pool of restaurants now takes that spirit to a whole new level.
A few years back, I disliked the idea of investing in Panera, simply because thought the stock was too expensive. I wasn't convinced that its growth was worth the high multiples investors were willing to pay.
Today, Panera trades at about 24 times forward earnings. It looks cheaper than Chipotle, and a tad pricier than Starbucks. However, its growth is now more impressive than it was several years ago. In 2009, Panera's revenue only rose by 4.2%, but in the last 12 months, Panera's revenue jumped 14.6%, while net income increased by 25.8%. Its gross margin has also been steadily improving over the last several years, hitting 35% in the last 12 months.
Last but not least, actions like the "pay-what-you-want" experiment aren't just innovative, but also give the brand a halo. "From the day it opened, the community has just gotten stronger and stronger in their support of this," Panera's chairman and founder Ronald Shaich said. "They got that this was a cafe of shared responsibility." Shaich added that the concept has helped prove that people are fundamentally good.
Panera could be a good investment that's good for the world, too. That's why it's on my watchlist. Is it on yours?
This article is part of our Rising Star Portfolios series, where we give some of our most promising stock analysts cold, hard cash to manage on the Fool's behalf. We'd like you to track our performance and benefit from these real-money, real-time free stock picks. See all of our Rising Star analysts (and their portfolios).
