Analysts Debate: Is Panera Bread a Top Stock?http://www.fool.com/investing/general/2012/03/21/analysts-debate-is-panera-bread-a-top-stock.aspx Alex Planes, Travis Hoium, and Sean Williams
March 21, 2012
The Motley Fool has been making successful stock picks for many years, but we don't always agree on what a great stock looks like. That's what makes us "motley," and it's one of our core values. We can disagree respectfully, and we often do. Investors do better when they share their knowledge.
In that spirit, we three Fools have banded together to find the market's best stocks, which we'll rate on The Motley Fool's CAPS system as outperformers or underperformers. We'll be accountable for every pick based on the sum of our knowledge and the balance of our decisions. Today, we'll be discussing Panera Bread (Nasdaq: PNRA ) , a fast-casual dining chain that's popular with Fools across the country.
Panera Bread by the numbers
Sources: Panera Bread 2011 annual report.
Sources: Panera Bread annual reports.
Chipotle grew faster over the past year (13% more locations in 2011 than the year before), but the company's brisk expansion plans are clearly priced in already. Panera's franchisees have already committed to opening 195 more restaurants, which would amount to a 12.7% growth in new locations if opened in the current year.
There are risks to Panera's business model, as other restaurants have caught on to the trend toward healthier fresh food options. But there is still a lot of growth left, and Panera's niche hasn't yet been invaded with success. If Panera's current growth rate of 6% holds up over the next five years, the company will wind up with 2,062 restaurants. I think that's a reasonable expectation, and that makes the company a long-term buy in my book.
When buying a stock, you don't just want to buy a company you like, you want to buy a company you like at a good price. Our outperform call on SeaDrill last week was based partly on a 13 P/E ratio and an 8.3% dividend, a great value for a company that's still growing. This week I'm staring at Panera's menu board wondering if I can afford this stock.
As Alex pointed out, store growth is expected to be just over 7% in 2012 and comparable sales are expected to grow between 4.5% and 5.5%. Those are nice numbers, but they don't justify a 35 P/E ratio or a valuation at 2.6 times sales, in my opinion. They also pale in comparison to Chipotle, which expects to add more stores to a smaller base in both 2011 and 2012, and had 11.2% comparable restaurant growth. Panera simply looks too expensive for me right now.
But I'm not running out to short Panera. That could be a suicide mission if investors keep ordering seconds. But an outright buy at this price is something I'll pass on.