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What’s so great about Panera Bread?

My pick for the best performing stock over the next decade is Panera Bread (NASDAQ:PNRA). If you have every eaten one of their delicious sandwiches than you already know all about Panera Bread. Panera Bread owns over 1400 cafe-bakery-restaurants serving sandwiches, salads, beverages, bread, cakes, cookies, and pastries throughout the United States.

Panera does not compete against the likes of McDonald’s (NYSE:MCD), Burger King (BKC), and Taco Bell (NYSE:YUM) as a low cost provider. Panera is an upscale, quick service restaurant chain whose business model is to offer generous servings of quality food. And customers love it which is why Panera’s customers are incredibly loyal. According to the Wall Street Journal, Panera Bread has the highest level of customer loyalty among all quick-casual restaurants.

What does the future hold for Panera Bread?

As a mid sized company, Panera has great growth potential over the next decade. Panera has a marke cap of $2.6 billion and an enterprise value of just $2.2 billion dollars. Gross margins are excellent coming in at 30% over the past five years. Margins will likely remain high for the foreseeable future as Panera’s prices are affordable but not cheap. Earnings grew just under 15% over the past five years and the future 5 year projected growth rate is even better at 17.4%. Revenue has increased for 5 consecutive years and this trend should continue. Panera could easily open at least 1,000 new stores throughout the US over the next decade. That says nothing for the overseas growth potential for Panera.

Panera has a great balance sheet as well. The bakery chain has over $300 million dollars in cash and no long term debt. I love firms that have no debt. Over the past five years, Return on Equity was a healthy 14.3% and Return on Assets was 10.1%. Current assets are two and a half times the amount of current liabilities. Panera is even buying back $600 million of its own shares which means that the company believes that its shares are cheap. The stock is currently trading for $82 per share. Earnings estimates for 2011 are $4.06 which means that shares are trading at a multiple of 20.5.

Should you buy shares now?

Share look fully valued to me at the current price. I am looking for a down day to initiate a position in the stock. I think that Panera Bread’s shares would be a steal in the $60’s.

Disclosure: I do not own shares of Panera Bread but plan on buying some over the next few months.

Source: Panera Bread: The Best Stock for the Next Decade