Yesterday's great Thanksgiving adventure for me was to make a "turducken" for the first time.
If you're not familiar with turducken, it's a boneless duck stuffed into a boneless chicken stuffed into a mostly boneless turkey, with layers of stuffing in between the birds. Once it's all together, you suture it up and it looks like a normal turkey. If done correctly, each slice contains some turkey, chicken, duck and stuffing.
Well, it took a lot of effort for this beginner to assemble a turducken together, which I thought would be the most difficult part. But as it turns out, the hardest part was getting my overstuffed monstrosity out of the roasting pan.
That didn't go so well ¿ in fact, the whole thing fell apart. There were no beautiful, mouthwatering slices like those that you see in the how-to videos. Nope ¿ just a heap of turkey, duck, chicken and stuffing. It was delicious, but it didn't look very pretty.
Frankly, my mess of a turducken reminded me of value investing. Companies look good when they're shiny and new, with investors often willing to pay a price that's typically too steep for me. I might like the business and believe it has a bright future, but hype drives its earnings multiple beyond what I view as reasonable.
Consider restaurant chain Zoe's Kitchen (ZOES), which went public in April 2014. The fast-casual eatery serves Mediterranean-style food ¿ which I thought wasn't my cup of tea, but I bit the bullet and gave it a try after one of our kids landed a part-time job there.
Umpteen visits later, I'm in love with their food. It's fresh, different than you can get anywhere else and I've never gotten a bad meal. I think Zoe's could become one of the fast-casual segment's next great success stories, given its fresh dining concept and the chain's fairly small store count (165 restaurants in 17 states).
But as much as I want to own the stock, the price just isn't right. Zoe's hasn't participated in the declines that some recent restaurant IPOs have faced this year, so its shares are simply too expensive for my blood.
I'm frankly not willing to pay Zoe's 200+ multiple of 2016 earnings estimates. Nor am I going to pony up the roughly $4 million-per-store price that you face when you look at the stock on an enterprise value vs. store count basis. (For comparative purposes, Panera Bread (PNRA) and Buffalo Wild Wings (BWLD) currently trade at, respectively, about $2.5 million and $2.8 million on an EV-to-store-count basis.)
I'll be more inclined to buy ZOES if and when the stock's luster wears off. I want it when it's beaten up and perhaps a bit ugly, just like my turducken was. I want investor expectations to be lower, although I admit they might never get down to the level that I find acceptable.
Ironically, our local Zoe's is in the same spot once occupied by Cosi (COSI), another fast-casual stock that I once owned but gave up on years ago after concluding the company might never turn a profit. Cosi is still hanging on ¿ barely ¿ but I wouldn't be surprised to see it ultimately go under, or perhaps bought out for its locations (which are leased, and not owned).
As for my turducken, this year's experiment hasn't dissuaded me from trying something offbeat next year. Perhaps I'll make another turducken ¿ more carefully put together, but then deep-fried.
Or maybe I'll try a "piecaken," which is a pie baked inside of a cake. Maybe there's a good investment lesson to be learned there, too!
