Before I begin, let me state that I am not saying to run out and buy these stocks right now! Many of these companies are currently trading at or near their 52 week highs. These companies may be trading at a premium right now but for good reason as they are premium franchises.
Here is my list of 3 stocks that could easily double over the next 5 years.
1. Buffalo Wild Wings (NASDAQ: BWLD)
As you already know, Buffalo Wild Wings is one of my favorite small cap companies. The company has tremendous growth potential with less than 700 locations nationwide and a market cap of just $860 million dollars. I recommended that investors buy shares when the stock was trading in the mid $30’s. The stock has rallied nicely and is approaching $50 a share. Here are a few things that I love about Buffalo Wild Wings.
The company has over $71 million dollars in cash and no debt whatsoever. Earnings growth is projected at 18% for the coming year. The company lowered its forecast based on increased costs associated with expansion. This is a conservative estimate considering that the company has been able to grow earnings at close to a 30% rate over the past 5 years. The company should be able to achieve 20% growth over the next five years.
Same store sales are still increasing with the last quarterly earnings report showing that comps were up 2.6% year over year. Gross margins are high at 25.8% and profit margins are solid at 5.7%. Shares are a little expensive since they currently trade at 23 times the current year’s earnings. The stock still has tremendous growth potential as Buffalo Wild Wings is continuing with its carefully executed expansion plan.
My take: I would buy shares at $48.
2. Panera Bread (NASDAQ: PNRA)
Panera is my favorite growth stock over the next decade. The company not only has delicious sandwiches but posts consistently good results. Panera Bread’s operating results were quite impressive even during the economic downturn of 2008. While other casual dining chains suffered; Panera Bread flourished. The company continues to keep foot traffic coming through its doors.
Last quarter same store sales increased 5.5%. Gross margins are still high coming in at 25% and the company’s profit margin came in at 6.4%. Earnings increased 16% over the past five years and the future growth rate should be even better. Return on equity is high at 18.8% and return on assets is good at 12.2%.
Panera has one of the best balance sheets in the restaurant industry. The bakery chain has $231 million dollars in cash and no long term debt. Panera has produced a healthy $234 million dollars in free cash flow for the current year. Panera’s growth does not come cheaply for investor. The stock is selling at a premium trading at 1.5 times earnings growth.
My take: Panera is a buy in the upper $70’s.
3. Cheesecake Factory (NASDAQ: CAKE)
Cheesecake Factory has rebounded nicely since the financial crisis of two years ago. The company was facing declining margins and declining foot traffic. The stock had even dropped below $5. How much better are things at Cheesecake Factory? The company’s operating margins are up to a remarkable 75%.
The company has seen its year over year revenue increase 4.4%. Earnings are up 32% over the past five years and 3% for the past five years. The growth is returning to Cheesecake Factory with the company projecting earnings growth in the double digits for next year. Return on equity and return on assets are just average coming in at 10.8% and 8% respectively.
Cheesecake Factory is the only company on the list with any debt. The restaurant chain has twice as much debt as cash. The nearly $100 million dollars in debt is not a problem for Cheesecake Factory since the company produces a solid amount of free cash flow for a mid cap stock. Panera has generated $160 million dollars in free cash flow for the current year.
I like the company but shares look expensive right now trading at almost 1.6 times earnings. Investors should wait for a pullback before buying shares.
My take: I would feel comfortable buying shares of Cheesecake Factory up to $23.
All of these stocks are in the casual dining sector and should benefit from any recovery in the housing, jobs, stock market.
Disclosure: I currently own shares of Cheesecake Factory.