It is no secret that there some groups of stocks, most notably community banks and REITs, that I love as an investor. There are also some that I just hate. I can't stand the business and I just hate everything about the stock and the group.
For me, the casual-dining group fits this bill very nicely. I can't stand the places and rarely will consent to enter one. While my good friend and fellow contributor Jon Heller noted in his recent restaurant review that he and I were the only Real Money folks who frequented Cracker Barrel (CBRL) , I have to say that while that was true when I lived up north, and Cracker Barrel was the only place to get something resembling a good plate of chicken fried steak and eggs, this is no longer the case. Living down south as I do now, there are numerous local joints that have a far superior product and now I even avoid the country-style chain.
I am not a big fan of the business model either, as it depends almost entirely on the opening of new locations to grow, and eventually that game runs out of steam. There are only so many corners that need some variation of the casual-dining chain, as we know. While they are perceived to be growing, these chains will frequently have high multiples, and this usually does not work out well for investors.
My least-favorite chain today is Buffalo Wild Wings (BWLD) . I have never liked the stock, though I love sports bars and have long thought that sports bars that aren't in a hotel should be named Ernie's or Lou's with local owners who are fans of a particular team and decorate the joint accordingly. The beer should include local brands, and the food should be regional favorites. In Maryland, I should be able to get crab cakes, and in Wisconsin, I should be feasting on brats. The homogenized, something-for-everybody, straight-down-the-middle-of-the-road approach of Buffalo Wild Wings just offends my highly developed sense of a good sports bar.
The company has been a Wall Street darling with good earnings growth and a continued stream of store openings. Since 2008, the company has had one of the top three F-score rankings as fundamentals were improving year after year, much to my dismay, but that is changing. Last year, the F-score slipped all the way down to 3 and is still just a 4, indicating that fundamentals are slipping for the company. Even after declining by 23% over the past year, the stock still trades at almost 30x earnings, so there could be further to fall.
The other casual-dining stock I do not get is Panera Bread (PNRA) . It is soup and a sandwich. Soup and a sandwich are not worth 33x current and 25x anticipated earnings. My wife and both daughters love the place, so I occasionally get dragged into a Panera against my will, and the only thing I ever eat is the tuna sandwich and chicken noodle soup. Nothing else on the menu appeals to me. There is one next to the hospital where my wife works, and she and her co-workers are always raving about the breakfast sandwiches. If I can't get my sausage and egg sandwich from a guy named Murray in a deli or diner, I would just as soon hit McDonald's (MCD) for a breakfast biscuit as pay up for the Panera version. (Panera Bread is part of TheStreet's Action Alerts PLUS portfolio.)
During the stocks' great run from 2010 to 2013, the company had an F-score most of the time of 7 or higher. In 2013, it started to trade between 5 and 6 and the stock has been pretty much stalled since then. For the last year, the F-score had moved between 4 and 6 as the fundamentals are flatlining here. As long as the economy remains soft, I have a hard time seeing the chain accelerating growth to the point it becomes a growth darling again. Uncertain consumers will find it increasingly difficult to indulge in $9 sandwiches and $5 coffees if the growth rate doesn't pick up and the quality of jobs being created does not improve.
I think we will see consumers continue to back away from casual-dining chains and investors will probably be well served by doing the same with the stocks.