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The Motley Fool owns shares of Chipotle Mexican Grill and Panera Bread. The Motley Fool recommends Chipotle Mexican Grill and Panera Bread.
The article Potbelly's Shares Popped, But Risk Remains originally appeared on .īrian Shaw owns shares of Chipotle Mexican Grill and Panera Bread. and click HERE for instant access to a whole new game plan of stock picks to help power your portfolio. And he wants to share it, along with a few of his favorite growth stock superstars, WITH YOU! It's a special 100% FREE report called " 6 Picks for Ultimate Growth." So stop settling for index-hugging gains. 1 growth stock newsletter in the world, has developed a unique strategy for uncovering truly wealth-changing stock picks. Motley Fool co-founder David Gardner, founder of the No. Tired of watching your stocks creep up year after year at a glacial pace? By waiting until the IPO volatility has declined, investors will also have a few extra quarterly results to help evaluate Potbelly's growth potential if it is determined that Potbelly can grow to reach 3,000 locations or more, waiting to purchase Potbelly until it reaches 400 locations still provides plenty of runway for grow (and market beating returns) without nearly as much risk as is present today. For investors that are convinced that the potential to increase store count is enough reason to purchase shares of Potbelly, purchasing shares in smaller increments rather than in one lump purchase will help ease the anxiety of attempting to time the purchase perfectly amid major swings in price.įor investors that believe in the Potbelly story but are concerned by these risks, a solid strategy would be to follow the company for a while before purchasing shares. The combination of high valuation, lack of proven growth record, and post-IPO volatility create a significant need for caution on the part of investors. Without a consistent track record of achieving strong growth, this risk/reward profile should be considered very carefully by investors before purchasing shares of Potbelly.įor Potbelly, 20% swings in share price without any material new information are to be expected as the market familiarizes itself with the company and calibrates the growth models used to value the stock. While 2013 will likely be the second such year in the past five years, there are a lot of aggressive assumptions priced into the current market valuation.
However, there is significant risk to investors that are willing to pay for Potbelly at a price to earnings ratio above 30 despite the fact that the company has reported revenue growth of 10% in just one of the past four years (15.5% revenue growth in 2012). As discussed just a month ago as Potbelly's shares were falling, there is certainly room for Potbelly to increase its store count with just 307 stores at the end of the third quarter, Potbelly is still significantly smaller than Chipotle and Panera. With lackluster SSS results, investors are relying on store expansion as the basis for driving shares higher. Potbelly's SSS growth of 2.5% follows anemic growth of 1.5% in the first half of the year. It is easy to argue that Potbelly's results this quarter look more like Panera's than they do Chipotle's. This negative sentiment for Panera was driven largely by the steady deceleration of year over year SSS growth in recent quarters from 5.9% in Q1, 3.7% in Q2, and 1.7% in Q3. Panera's results were labeled by many in the investing community as a "surprise" and "failure," and shares were punished with a 6% decline to a 52-week low.
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