Panera Bread Co (PNRA): Is This Stock the Next Starbucks Corporation (SBUX)?

In addition, last year, the company generated $290 million in cash flow from operations which is more than enough to fund the company’s expansion.

Reasonable valuation

This bothers me. Nearly every article I’ve read on Panera Bread Co (NASDAQ:PNRA) goes like this: Great company…great growth…but looks a little too expensive. After a 260% run over the past five years, Wall Street has declared you missed the move. But, let’s take a look at the metrics. Panera trades at 23 times forward earnings. Given EPS is expected to grow at a 20% clip over the next five years, the stock is valued at a reasonable 1.15 PEG ratio. That’s pretty cheap compared to other names in the space.

Consider Chipotle Mexican Grill, Inc. (NYSE:CMG). This stock trades at a monster 30 times forward earnings. Assuming a 20% growth rate, Chipotle is valued at a premium 1.50 PEG ratio.Such a premium is troubling given the company’s deteriorating fundamentals.

Last quarter, the company grinded out a meager 1% gain in comparable store sales. Chipotle’s margins are also under pressure due to higher prices for barbacoa, steak, and salsa ingredients.

Panera looks even cheaper against restaurant king McDonald’s Corporation (NYSE:MCD)?

McDonald’s looks pretty cheap at 15 times forward earnings, but that’s misleading given the company’s slowing 9% EPS growth rate.

After a great run, the company is running into the law of large numbers with same store sales declining 1% in the first quarter.

But why such a premium? Interest starved investors are in a desperate hunt for yields. This could leave the stock particularly vulnerable if interest rates start rising.

Foolish bottom line

In many ways, Panera Bread Co (NASDAQ:PNRA) exhibits the same traits Starbucks Corporation (NASDAQ:SBUX) did 10 years ago. Big growth, great execution, and a reasonable valuation is a winning combination that could propel shares higher.

Robert Baillieul has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill, McDonald’s, Panera Bread, and Starbucks. The Motley Fool owns shares of Chipotle Mexican Grill, McDonald’s, Panera Bread, and Starbucks.

The article Is This Stock the Next Starbucks? originally appeared on Fool.com.

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