If you've read my previous
on these two companies, you're familiar with one of the main
reasons I believe that
) are overvalued: The huge five-year EPS growth rates that have
been assigned to them -- CMG: 33%, PNRA: 18% -- by their present
stock prices of $419 and $164, respectively, are based on the lack
I have said that one of the biggest reasons for that is that the
capital markets were closed to new restaurant offerings after the
2008 market crash while consumers were trading down from casual
dining to the fast casual concepts and these two companies.
With frothy stock prices in place in the consumer discretionary
sector, we are now getting an expected growth in IPOs in the fast
casual restaurant subsector.
Noodles & Co.'s
) price has shot up fast since its IPO, and now we have Potbelly,
which, with Howard Schultz of
) as an investor, should likely be seen as a very serious
Going by popular images of Potbelly, it also looks pretty much like
the other few potential fast casual competitors I saw in Dallas a
few months ago. So the competition is coming in earnest now, though
the actual stores have not yet appeared.
Looking at Potbelly's menu, the large sandwiches go for $6.10,
which is relatively in line with the Dallas concepts I have seen.
Compare that to the prices at Chipotle and Panera and you can see
that their pricing is $1.00 at a minimum too high. Take that extra
gross margin out of their earnings estimates maybe three years
It won't be pretty.
Customers line up at a Potbelly location in midtown