by Neal Goodwin
Chipotle Mexican Grill (CMG) is a giant of the Mexican fast food industry. This stock has been on a rather impressive climb over the last few years, increasing 500% since early 2009 and almost 100% over the last 12 months. Momentum is great for this stock, and makes it an attractive short term buy. Long term prospects are not as certain. CMG has a trailing P/E of 48.06, however it has somewhat justified a high P/E ratio with impressive 5 year earnings growth average of over 20%. The question becomes how long will it be able to keep up this level of growth rate, and can it get its P/E value down by doing so? For the foreseeable future CMG may be able to keep up the momentum it has built, as there still is growth potential. The company's new organic offerings has a lot of people going back for more. One area that truly sets CMG apart from the industry is its incredible efficiency. Revenue per employee is 15x the industry average and inventory turnover is 4x the industry average. This shows how well CMG utilizes its assets, and suggests significant room for continued success. I think CMG will continue on its current path, and give it a hold rating. CMG does not provide a dividend and one downside to the stock is its high price, currently selling just above $284 per share.
Tempur-Pedic International (TPX) has a P/E of 26.60, and is projected to grow 36% in revenue this year. I'm very high on this stock. TPX makes premium mattresses and pillows out of its Tempur visco-elastic foam. Home furnishings are performing incredibly well. People are in the mood to improve current homes with new furnishings instead of buying new homes in the current housing market. This "replenishment boom" started in the first quarter of 2010 and has been picking up steam, benefiting stocks like TPX and other home-good sellers like Bed Bath & Beyond (BBBY). In that time TPX has had an EPS increase of over 84%, revenue growth of 33%, and per share increase of over 100%. Experts expect the replenishment boom to be at its height until early next year, where they have more moderate growth expectations for TPX of 17% versus the 36% for this year. Like CMG, TPX sets itself apart from its industry in efficiency; its net income per employee is 14x industry average and inventory turnover 2.5x industry average. ROI is also 6x industry average. Tempur-pedic is taking the mattress market by storm and I have TPX as a strong buy. Expect the ride of momentum to continue. TPX is trading at $64.55 per share and does not provide a dividend.
Buffalo Wild Wings (BWLD) is a chain of restaurants of sports-bar feel featuring a variety wings cooked in any of its signature sauces. BWLD has historically been a seasonal stock, and the summer months have been its weakest performance months. The stock typically sells off around the end of May or beginning of June as its business is largely fueled by primetime sporting events. The stock typically picks up again once the football season starts. Two factors that could hurt BWLD this year: chicken prices as a result of increased demand from BWLD and CMG could cause costs to soar, and the potential NFL lockout may cause the usual callback of BWLD stock in September to never come. Factors aside, BWLD has amazing growth potential. With a lack of serious competitors, BWLD has immense potential to branch out and a potential large market. It has a P/E of 26 and projected earnings for the next year of 25.7%. BWLD is being called the next Chipotle in its growth earnings potential which is ironic because the two may be the main cause of increasing chicken prices, driving up both distributors' costs. BWLD is a much cheaper alternative to the pricey CMG, selling around $62 per share and providing no dividend. While BWLD has incredible growth potential, there are a lot of factors making this stock a wild card. Regardless, the summer months are historically a bad time to buy this stock. Stay away for now, and watch to see if there is NFL this fall and if chicken prices do not rise too much, pounce on this stock as we approach the twilight of summer.
Fastenal Company (FAST), based in Winona, MN, sells industrial and construction supplies and services including inventory management services. FAST provides a dividend and yield of 0.52 and 1.6% respectively. FAST grew almost 33% from a year ago in earnings, gained 42% in EPS, and has a growth estimate of 28.64%. With a P/E of 33.6 and PEG ratio of 1.47, this stock seems very reasonably priced at $33 per share. It has shown excellent returns compared to its market competitors, getting 6x market averages for ROA and 5x market averages for ROI. FAST is currently yielding at 1.6% at a payout ratio of 49%. It also carries no debt at all currently and has a market cap of $9.77 billion. This company is slightly undervalued, as it has taken a growth initiative to enhance its building and replacement activity over the next five years. This presents an opportunity to buy slightly below fair market value.
Expeditors International of Washington (EXPD) is a logistics service provider worldwide. Its current sale of 52.59 per share may be a little overvalued as its P/E of 30.40 is accompanied by an expected earnings growth of 20.16. PEG ratio is also high at 2.02. EXPD has grown 41% over the past year and 10% over the past 3 months, however this is too much too quickly and has been oversold. EXPD's P/E is not supported by a similar expected growth rate, and I expect a relapse in prices. Expect it to perform with the market if P/E falls below 20, but for now expect underperform. It does pay dividends of $.50, with a yield of 1% currently and a payout ratio of 23%. The company also has a net profit margin of less than 5%. I consider this stock a hold. It has a sound balance sheet and had considerable returns last quarter, increasing EPS 14 cents above a year ago and increasing net income by 50%. Many analysts revised their estimates upward for 2011, however EXPD still appears to be overvalued due to its recent performance.
Panera Bread Co. (PNRA) is a national bakery-café chaine with almost 1,400 locations in 40 states and Canada. System-wide, it claims to serve nearly six million customers a week. Panera Bread has revolutionized the bakery-café concept and has proven that casual dining can also be high-quality dining, and that is how it consistently outperforms expectations. PNRA has succeeded using a very similar template used by Chipotle Mexican Grill (CMG). If you're counting at home, that’s the second time CMG has been referenced in this article as a template for a high growth business. PNRA is trading at a 31.80 P/E and has an expected growth of just below 26%. In the past year, it has increased in value by greater than 60% and has increased EPS by 30%, up from its 5 year average of 17%. Panera, like Chipotle, is riding the healthy food wave to a high level of stock growth momentum. Healthy fast food has performed incredibly in the stock market, and it sticks with people because they get comfortable having a go-to lunch spot that is also healthy and trendy. This stock is no longer cheap (trading at $125) but it still has room for growth potential, both inside and outside of the United States as it has barely tested international waters. May need to be wary of a considerable recent 52-week high causing the stock to relapse, but PNRA has great long term potential, and I consider it a buy for the long run.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.