Panera Bread Co. (Nasdaq: PNRA) reported second-quarter earnings this morning, meeting analysts' estimates of $0.13 per share. But upon the market's open, the stock promptly fell nearly 7%. That kind of reaction to an earnings report that met expectations is the telltale sign of a momentum-driven stock. Momentum investors bail in situations like this because even they know only expectations-beating growth can support Panera's sky-high earnings multiple of 57.

The stock's decline may also relate to some signs of margin deterioration that showed up during the quarter. Even though the overall operating margin and net margin increased versus the year-ago quarter, some individual expense line items (such as cost of food/paper and labor) accounted for a higher percentage of sales than last year. As a result, overall bakery-café expenses increased to 83.1% of sales, up from 82.1% of sales in the comparable quarter a year ago. This may seem like a small difference, but on a business with a net margin of around 6%, every percentage point counts for a lot.

A higher cost structure would certainly cause investors to grow more leery of the company's aggressive forward-earnings guidance. Panera management reiterated its guidance for 40% EPS growth in 2003. Given the uncertain economy and recent signs of a weakening consumer demand, that could easily prove a tall order.

At a recent price of $32, Panera stock trades at 32.7 times estimated 2003 EPS of $0.98. That's almost twice the P/E multiple of the average restaurant on a trailing EPS basis. Those multiples look especially rich given that -- in my opinion, at least -- Panera's bakery-cafés don't have the distinguishing qualities of a Starbucks(Nasdaq: SBUX) or a Krispy Kreme(NYSE: KKD).

Think about it. There are countless coffee lovers who go to Starbucks every day. And if you're a doughnut fan, you want to make those fat grams and calories count by only eating the finest: Krispy Kreme. But what strong niche does Panera fill? I group Panera with other reasonably priced, quick-serve restaurants such as Cosi and Baja Fresh. I can easily see Panera's growth tapering out in the not-so-distant future, while the true category-killer franchises, such as Starbucks and Krispy Kreme, continue to grow steadily for years.

Bottom line: I don't see the upside for Panera at 57 times trailing earnings and 33 times forward earnings. Others apparently agree, given that 15% of the stock's float is short. Fools, beware.