There's a Cheaper Buy Than Starbucks Today

The quick-serve restaurant space has been serving up an interesting -- and choppy -- earnings season. Hot or cold? Starbucks (NASDAQ: SBUX  ) is currently among the hot, having reported quarterly results that investors loved last night.

Hot, hot, hot
Starbucks' third-quarter operating income increased 25% to $615.2 million, or $0.55 per share. Total sales jumped 13% to $3.7 billion. Global comparable-store sales increased 8%, with 7% of that made up of all-important traffic growth. Lower costs, for example for coffee, also fed into the cafe giant's improved profitability.

In the company's press release, CEO and founder Howard Schultz described the company's digital, card, loyalty, and mobile initiatives as creating a "flywheel" effect that is increasing momentum for growth and profitability.

Starbucks also mentions initiatives investors can feel strongly about. The current yogurt craze is pretty obvious, and Starbucks isn't missing the boat. Its recent announcement that it's teaming up with Danone to provide Greek yogurt parfaits sounds probiotically positive, for example; those parfaits will be co-branded with the company's juicing unit, Evolution Fresh.

Starbucks isn't backing away from its strange bedfellows, either. It's expanding its partnership with Green Mountain Coffee Roasters, having shipped its one-billionth Starbucks- and Tazo-branded K-Cup in the quarter for the Keurig single-serve beverage machine.

In another forward move into food, Starbucks is further increasing its offering of La Boulange products in stores, now counting 1,076 cafes carrying the baked goods.

Starbucks' success in bringing in the customer traffic echoes that of Chipotle Mexican Grill  (NYSE: CMG  ) , which recently re-established itself in investors' good graces with its quarterly results. Chipotle's comps increased 5%, and again, this was mostly due to more customers darkening its doorsteps -- a very bullish sign, among others.

When the bread doesn't rise
When it comes to hot and not, though, one quick-serve concept's stock has had a rough week. Panera Bread (NASDAQ: PNRA  ) shares took a beating after its quarterly results disappointed investors. Same-store sales increasing 3.8% caused that bread's failure to rise, since analysts had expected a 4.5% bump.

Starbucks is clearly on a roll right now, as is Chipotle. Is it time to buy either of those darlings? At this moment, count to 10 before pulling the trigger. Cautious investors who get nauseated by stock prices' ups and downs might want to wait until traders (and prices) cool down a little bit.

Granted, Starbucks and Chipotle are both super-strong companies, and in my opinion, solid long-term holdings. I own shares of both in my personal portfolio, and have bought shares for the real-money Prosocial Portfolio I manage for Fool.com. Although I wouldn't say buying either one today is a grievous mistake for long-term buy-and-hold investors -- and there are far weaker companies out there that investors are snapping up at overblown prices -- good things come to those who wait in investing, and quarterly euphoria is a fickle thing.

Right at this moment, of the three quick-serve concepts, Panera -- the "cold" one -- is the best buy, in my opinion. Like the other two, it's also a very strong company keyed into consumer trends (and it's also one of the stocks in the Prosocial Portfolio, incidentally).

This week, disappointment has laid Panera shares low, and anyone who felt they missed the boat can dig in now. Consider Chipotle: When near-term bearishness tore it down, investors should have seen opportunity instead of calamity. Those who bought at its 52-week low of $233 are happy campers right now.

Long-term shareholders can rejoice about the strength that Starbucks and Chipotle exhibit. I'm pretty pleased, myself. But when it comes to looking for a cheap stock idea today, Panera's beaten-down price means it shouldn't be dismissed to the back burner.

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Read/Post Comments (7) | Recommend This Article (41)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 29, 2013, at 5:26 PM, Seanickson wrote:

    I don't agree with many of these type of articles, but I do with this one. Panera is a good combination of growth and reasonable valuation

  • Report this Comment On July 29, 2013, at 7:53 PM, nwaluli wrote:

    I think SBUX is still a good buy even at the current price. I think it will be $100 stock in the not too distant future.

  • Report this Comment On July 30, 2013, at 7:55 AM, mikecart1 wrote:

    When it comes to restaurant stocks, it is a lot more simple than people realize. What has lines out the doors daily - especially during lunch hours?

    Chipotle, Starbucks, Chick-Fil-A

    Which is usually easy to get food (meaning short lines)?

    Panera, McDonald's, Noodles & Co

    Let your eyes make you mad money!

  • Report this Comment On July 30, 2013, at 11:05 AM, REF049 wrote:

    Panera - Once a time (2003-2005) Panera was a favorite of mine. I noticed in 2007 a "tired" franchise location in Greenville, SC. Then I was traveling on business quite a bit and would try to eat at Panera in various parts of the country from the Atlantic to the Pacific Coast, and in between.

    What I've found is that my perspective in 2007 was only a harbinger. For the most part, the Panera restaurants are poorly staffed with moderate imbiciles, who are sometimes polite, but clueless about customer service or their business. The baked goods are not presented well, and inventory is not understood and therefore scattered outages. The restaurant area itself is dirty and sloppy. Food mediocre.

    I always choose a McDonalds, or Chick-Fil-A over Panera. Burger King suffers from same problem with poor staffing (training?, hiring?)

    In general, since I won't choose to eat at a Panera, sure won't put my money into its equity.

  • Report this Comment On August 05, 2013, at 9:22 PM, crca99 wrote:

    I've been to 3 Panera's in 3 states. They were the opposite of what's described above, which helped me go long on PNRA.

  • Report this Comment On August 14, 2013, at 1:58 AM, mrplow2000 wrote:

    A quick look at the fundamentals for each one:

    Starbucks http://simplistickr.com/SBUX

    Chipoltle http://simplistickr.com/CMG

    Penera http://simplistickr.com/PNRA

    All have high PB ratios but this is justified by solid return on equity, only Starbucks is paying a dividend, I would say Penera comes out on top for a value perspective.

  • Report this Comment On August 16, 2013, at 12:57 AM, Libertarian71 wrote:

    What is "Socially Responsibe Investing"? Buying stock in companies where liberals like to hang out (e.g., Starbucks and Whole Foods), or whose politics the author agrees with? So it's not "socially responsible" to buy stock in, say alcohol, tobacco, oil companies, and gaming companies?

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Related Tickers

11/26/2014 10:05 AM
PNRA $165.00 Down -0.13 -0.08%
Panera Bread CAPS Rating: ****
SBUX $79.45 Down -0.76 -0.95%
Starbucks CAPS Rating: ****
CMG $659.47 Up +4.57 +0.70%
Chipotle Mexican G… CAPS Rating: ***

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