Panera Bread Co (NASDAQ:PNRA) operates restaurants/cafes in the U.S. and Canada. Its growth has not only been good, but it has been consistent. Take a look at this multi-year chart below. It doesn’t get much cleaner and consistent than this.
In fact, the company has also produced stable and increasing cash flow from operations and Return on Equity (ROE). It’s tough for these two metrics to lie, especially when you look at a long-term trend. A company may be able to game a quarter or two to make things look nice, but when cash flow from operations and ROE are this pretty for four years, you know it’s the real deal.
Valuation
Dividend
Unfortunately, Panera Bread Co (NASDAQ:PNRA) doesn’t give us a dividend. But its growth history and potential are stellar and provide investors a lot of comfort. They are nowhere near saturation in the U.S. and have barely scratched the surface of their market potential in Canada. Someday, they may head overseas, but that is not necessary yet to drive continued growth. The domestic market still provides ample opportunity for Panera Bread Co (NASDAQ:PNRA) to give investors excellent returns.
Alternative #1: Starbucks
If you’d like another alternative, but a similar enough company, then look at Starbucks Corporation (NASDAQ:SBUX). Over the past couple of years, Starbucks has returned to its roots as a reliable growth story after spending a couple years of struggling to grow.
Now, Starbucks is planning an increasingly aggressive expansion overseas to juice its earnings and send the stock price through the roof. In particular, the expansion in Asia is the most interesting given how big a market it is and the fact that Starbucks has generated double-digit comps for eleven straight quarters.
If the solid U.S. results and huge potential in Asia aren’t enough, Starbucks Corporation (NASDAQ:SBUX) is also expanding through acquisitions in Teavana, LaBoulange, and Evolution. All of these food and tea products figure to provide additional profits and growth, especially once Starbucks has a chance to apply its business expertise to these relatively young companies.
Valuation
Investing in Starbucks Corporation (NASDAQ:SBUX) doesn’t come cheap. It has a ton of potential, but you pay for that with a P/E of 32.3. The good news is that revenue continues to grow at a double-digit clip, all while cash flows from operations continue to rise.
Dividends
There may be nothing better than a stock that not only gives you high-growth potential, but also provides a solid dividend while you wait. The aforementioned 32.3 P/E can be tough to stomach since it prices-in much of Starbucks’ potential. However, now that Starbucks Corporation (NASDAQ:SBUX) provides a 1.30% dividend yield, it’s a little easier to buy and hold through any ups and downs to get those regular dividend payments.
Alternative #2: Dunkin’ Brands
Dunkin Brands Group Inc (NASDAQ:DNKN) operates Dunkin’ Donuts and Baskin Robbins locations worldwide. Since going public again in 2010, Dunkin’ Brands is up 53%, beating the S&P 500’s total return of 31%.
Dunkin’ spent years closing locations and getting its business in order to prepare for an expansion back into the same markets it exited. That time of expansion has come. Dunkin’ has headed west again to fill the country with donuts, coffee, and ice-cream. This growth has allowed Dunkin’ Brands to outperform the broader market and should allow the company to continue such strong performance going forward. Keep in mind that it is just now starting to re-open in California. Successfully growing back into California alone would propel the stock higher.
Need an extra incentive? How about the 1.80% dividend yield that Dunkin Brands Group Inc (NASDAQ:DNKN) provides while it continues its regrowth? That comes close to the 2% dividend that the SPY is giving you right now and while also providing a business that has a heck of a lot bigger growth opportunity.
Bottom line
Panera Bread Co (NASDAQ:PNRA) has been consistent for a long time. Starbucks and Dunkin’ Brands have started to come back in a big way over the past few years. All of these stocks have growth potential ahead of them. Panera and Dunkin’s growth will likely be more organic. Starbucks Corporation (NASDAQ:SBUX) will still have organic growth in other parts of the world, but is also expanding through acquisitions domestically.
I like all three of these companies. They all trade at premium P/E’s, so a pullback would be nice. The long-term outlook for all is positive.
Dave Zaegel has no position in any stocks mentioned. The Motley Fool recommends Panera Bread and Starbucks. The Motley Fool owns shares of Panera Bread and Starbucks. Dave is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article This Stock Should Continue to Power Higher originally appeared on Fool.com and is written by Dave Zaegel.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
