Yesterday, I got a question from a long time reader Russell who asked my thoughts on his inclination to play Panera Bread (PNRA) from the long side as a potential beneficiary of Chipolte’s (CMG) e-coli pain. Here was my quick response on the stock’s price action, technical set up & valuation:
the recent move in the stock from $180 to $190 in the last week seems to reflect some of this sentiment.
from purely technical standpoint PNRA looks to be at a good short entry at the downtrend from the late July all time highs, possibly playing for a move back to $170.
PNRA trades 29x 2016 earnings that are only expected to grow 6% on 4% sales growth. They better get a huge boost from CMG’s pain to justify that premium valuation!
Taking a longer term view. The seven year chart (below) shows the stock holding its uptrend from the 2009 lows like a boss, with three tests since mid 2014:
But the stock has now made a series of lower lows and lower highs (since the prior highs), placing a re-test of the uptrend again very likely. The next identifiable catalyst will be earnings in early February, but at this point I suspect that the CMG headlines shift away from more e-coli cases and transition to the aftermath of dealing with consumer distrust and brand degradation. I’d rather be a seller than a buyer of PNRA, the CMG bump may already be in the stock.