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 If you were to go out to dinner with my wife, you had better be patient. She is the kind of person who really enjoys going to a nice restaurant and drilling the waiter about every detail on the menu.
Perhaps you've met these kinds of people. One thing I will say, she usually gets one of the best dishes on the menu. That's why I asked her what she thought of P.F. Chang's China Bistro (PFCB). Her answer: A+.
Now, this is not an endorsement of P.F. Chang's. I, for one, don't care too much for Chinese food, but a lot of people probably do because the stock has been on a tear. Since 1999, when it first began trading, the stock has soared from $10 to $55. The stock is still whetting the appetite of investors and not only Chang's but also a lot of other restaurant plays. They are in!
Since the start of this bull market in early 2003, Cheesecake Factory Inc. (CAKE), for example, served up a gain from $4 to $18, Applebees International Inc. (APPB) leaped from $16 to $28 and little-known Famous Dave's of America Inc. (DAVE), a ribs and blues music chain, surged from $3 to $12.
When eSignal subscribers are looking for stocks in a strong group like the restaurant sector, it is a bit like looking at a menu. The idea is to go after the "best dish" and get the best value. In other words, seek the leaders or the stocks with the strongest uptrend and try to enter when they are emerging from a basing pattern. P.F. Chang's and Cheesecake fit the bill.
On a long-term basis, P.F. Chang's stock has never been damaged. The stock is a success story still being written. Near term, the stock is now in a 16-week base bracketed between 53 and 58½. As of mid-March, it was $56.92. Technically, the key is for the stock to emerge from the base on the upside and make another leg up.
P.F. Chang's, based in Scottsdale, Arizona, operates about 100 full service bistro Chinese restaurants in 30 states. Annual revenues are approximately $560 million. The restaurants provide lunch and dinner menus from five culinary regions of China. Specialties include Chicken in a Lettuce Wrap and Szechwan-Style Long Beans, as well as a variety of other dishes made with chicken, beef, seafood, vegetables and noodles. The company also owns and operates some 30 limited-service Pei Wei Asian Diners in the southwestern U.S. The word is that these fast-food outlets are very good.
This year, P.F. Chang's earnings should surge 53% to $1.55 a share from $1.01 a year ago. The stock sells with a price-earnings ratio of 36. Next year, analysts are currently looking for net to climb 24% to $1.92 a share. The stock is one of the high-growth issues in the restaurant sector.
Revenues are growing at a 31% clip and benefiting from increase outlets. This year, P.F. Chang's should open 18 bistros and 26 Pei Wei fast-food outlets. Same-store sales growth should be in the low single-digit area. Margins are expected to improve slightly. In 2006, the firm plans to start a new chain with an Asian theme.
For the upcoming fiscal first quarter, profits should leap 40%. The stock appeals to several top funds. Baron Growth Fund has a big 4.8% stake on its platter and T. Rowe Price Mid-Cap Stock Fund a 3.9% stake. Both funds have a 5-star rating from Morningstar, the highest possible.
Cheesecake Factory, based near Los Angeles, is another restaurant stock with potential to move higher. Its annual revenues are approximately $1 billion. The stock formed what some technicians call a "cup-and-handle base." Seems appropriate for a restaurant stock! CAKE emerged from its nine-month base with upside resistance at 33. It is now at 34.
This year, CAKE should show a 29% increase in profits to $1.11 a share from 86 cents a year ago, according to analysts. Net for the first quarter should rise 13%, with the growth rate picking up in the second quarter to 28%.
The driver for CAKE will be the expansion of its successful restaurant concept, which features a wide-menu of some 19 pages that covers everything from sandwiches to steaks and seafood and, of course, cheesecake, which comes in some 40 varieties, including Chocolate Tuxedo Cream and Kahlua Cocoa.
Currently, CAKE has 90 restaurants. Its goal is to go to 200. It plans to open 18 restaurants this year. That will include 15 Cheesecake Factory restaurants and three Grand Lux Cafes. Same-store sales growth is expected to be 2 to 3% this year.
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