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Panera Bread Co (PNRA), Starbucks Corporation (SBUX): These Specialty Eateries Are as Pricey as Their Menus

Panera’s post-earnings sell-off serves as yet another reminder of what happens when investor expectations become irrational. Even strong growth isn’t good enough when expectations rise to unsustainable levels, and that’s exactly why the stock fell hard even though it reported great numbers.

Starbucks Corporation (NASDAQ:SBUX) is the only stock of the three to pay a dividend, which provides decent downside protection. At recent prices, the yield stands at 1.2%, but you shouldn’t count on any of these companies being income plays. Clearly, these stocks are counted on for strong growth, which they deliver.

That’s why it’s so hard to understand the market’s reaction in any given quarter. Strong growth is sometimes good enough and sometimes not, but that’s the gamble investors take when they pay close to 30 times earnings for large-cap stocks.

As a result, for the most part I’d recommend investors steer clear of these stocks until they trade for more reasonable multiples. However, at 25 times earnings, Panera looks interesting, and it’s getting close to that level. Chipotle Mexican Grill, Inc. (NYSE:CMG) and Starbucks Corporation (NASDAQ:SBUX), on the other hand, need to pull back significantly before I’d recommend them to my fellow Fools.

The article These Specialty Eateries Are as Pricey as Their Menus originally appeared on is written by Robert Ciura.

Robert Ciura has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill, Panera Bread, and Starbucks. The Motley Fool owns shares of Chipotle Mexican Grill, Panera Bread, and Starbucks. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

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