Why does one restaurant succeed while others fail? Owners can never take customers for granted. Some top outlets of yesterday can lose custom in a flash. It is hard for stock investors to exit. After all, business, social, and family events cannot stop. Perhaps we can shuffle stocks within the Restaurants Industry. There are other options within the Services Sector as well. Are you ready for an example?
Consider the Panera Bread Company (NASDAQ: PNRA). The stock price at the end of the second week of April 2008 has been about 30% below the 52-week high. Even this Price is nearly 23 times Earnings. The Net Profit Margin has dropped from an average of 7.04 over the past five years to just 5.39 during the last four quarters. Can the stock survive the ongoing wheat price inflation?
The company opened new branded and franchised outlets during the 2007 financial year. It also invested cash in outright purchases of some franchised outlets. However, it also sold some outlets, and closed others. Is there a method to these contradictory moves, or is the management participating in a marketing experiment?
The company has an extravagant system of logistics. More than 150 trucks with temperature controls travel up to 500 miles to serve fresh dough to an average of seven outlets each. Are you willing to pay enough for that warm bagel so that the stock can stay above water?
Do you chill out at a Panera? Have you stopped visiting because of a diet issue? Please write in and let us know your sandwich choices. Then we can agree on what to do with this stock.
