Why Panera Bread Is A Better Buy Than Chipotle

| About: Panera Bread (PNRA)

Panera Bread (PNRA) and Chipotle (NYSE:CMG) are two restaurant chains that reported strong profits lately, giving their stocks another big pop. But what is next? Which stock offers a better appreciation potential?

(Click chart to expand)


Panera Bread, for a number of reasons:

First, despite its robust earnings and stock run-up, Panera Bread is below the momentum crowds radar, as reflected in the trade volume of the stock. Chipotle, by contrast in on everyones radar, including financial commentators like Jim Cramer, raving about the company stock.

Second, Paneras smaller size (in terms of sales) gives the company more room to grow and attain economies of scale.

Company

Average Daily Volume

Sales

CMG

1,005,000

2.16B

PNRA

644,000

1.67B

Third, Paneras low PE, nearly 60 percent below that of Chipotle, makes the company less expensive than Chipotle.

Chipotles recent Financials

Operating Margin

15.63%

Quarterly Revenue Growth

25.4%

Quarterly earnings growth

25.30%

P/E

51.89

Total Cash

$384.4M

Operating cash flow

$334.95M

Paneras recent Financials

Operating Margin

12.37%

Quarterly Revenue Growth

19.3%

Quarterly earnings growth

33.70%

P/E

31.48

Total Cash

$229.4M

Operating cash flow

$221.95M


Forth, Chipotle’s growth is, in part, is driven by fashion and faddism for Mexican food. This means that its growth will suffer once the craze fades away, as has been the case with other objects of craze in the past.

Fifth, Jim Cramer is extremely bullish on the company, calling it a “culture” rather than a restaurant in CNBC this morning. For me, this is a contrarian indicator. Remember how Jim Cramer was raving for Netflix (NFLX), Open Table (OPEN), and Green Mountain Coffee (GMCR) a few months ago?

Disclosure: I am long PNRA.

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