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Varchild2008 (84.39)

How can CBOU become CMG?

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August 09, 2010 – Comments (2)

Here's a quizz question....  What do you look at to determine how a growth story small shop can grow and become as big as a big time company with a big time share price?

There's a lot you have to look at....  First, in any sector you have to realize there are subsectors and business lines...   I used to think that the ridiculous press releases about "Such and Such market is $300 billion" because there was no way a small company would ever grow to earn anything close to that....

But you have to at least understand that if Business A is in a business sector that makes $300 billion while your Stock... Business B  is in a sector that makes $150 Billion, that the growth rates for your business versus the bigger business A is drastically different.  

But how different???  That is where you have to be extremely smart and really have to think.

Just because (TODAY) one sub-sector of the Restaurant Business is cumulative making far more money than another sub-sector does not mean there is a Greater sub-sector and a Lesser one..

You also have to disect whether or not the smaller earning sub-sector is the way that it is because it is simply newer.....   being Newer means no company exists doing business in that sub-sector for anywhere close to as long as Business A and its competition has been doing business.

The longer you exist the chances are the bigger you become and thus more earnings you can pull.

So you have to identify a lot of factors involved to explain for example:

Selling Coffee + Tea   (CBOU) or (GMCR) or (SBUX) examples...

versus.

Selling Dinners, Lunches, Breakfasts    (CMG)
Let's compare CBOU against CMG..

CBOU: 

20 million shares outstanding
Share price today at the close $10.10
Expected EPS for 2010 is .43eps    (was .44 last week Friday)
P/E  23.5
Cash per Share  .89
P/Cash Flow   9.9
No Dividend

CMG:

31.1 Million shares outstanding
Share price today at the close $151.34
Expected EPS for 2010 is  $5.10
P/E  29.7
Cash per Share  $9.84  
P/Cash Flow  21.9
No Dividend

CMG has about twice as many shops as CBOU in 35 states... far more states than CBOU.
It has a much bigger international business than CBOU.

But none of that explains anything better than Line of Business that CMG is in versus a CBOU.

You simply can expect more growth from a CMG to justify the much higher P/E ratio and P/Cash Flow multiple.

Simply put....  Don't just look at the #s in the Financials to compare 1 stock versus another.

You need to know the Line of Business they are in as well as how NEW and TRENDY one business is versus another.

For example....   E-Books  do not earn more $$$$$$  yet versus  Paper / Hardcover books....
But, I would not think to buy a Barnes and Knoble or Borders versus an Amazon or Apple simply because there's more money today in PAPER Books versus electronic....

You have to follow the trend and determine if the Electronic Business for Books is going to eventually surpass that of the Paper Books...

Remember when Video Games made significantly less money than Movies?
Now Movies make significantly less money than Games!

See how it works?     

If a stock boasts some new technology they just researched and are going to manufacture in mass production this year or next year... or in 5 years....     PAY ATTENTION!!!!

2 Comments – Post Your Own

#1) On August 09, 2010 at 6:49 PM, ikkyu2 (99.46) wrote:

You're looking at the wrong numbers.  It was possible to predict outperformance of CMG 4 years ago - I know, I did it, in comments to EldrehadsPicks' blog.

The key stat in this case is operating margin.  CMG sports 25%.  Its competitors average 12%; the worst of them, BWLD, had a year where margins were zeroed because of a spike in the cost of chicken wings.  CMG is smart enough not to be levered to chicken wings.

Can CBOU boast operating margins comparable to CMG?  Can CBOU deliver customer satisfaction like CMG?  Can CBOU scale their operations to grow as fast as CMG - and is that even their goal?  If everything's a 'Yes', then the stock's a buy.

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#2) On August 09, 2010 at 9:14 PM, Varchild2008 (84.39) wrote:

Operating Margins are NOT the statistic to go by.

The reason is that they are far too volatile as you mentioned.
BWLD experiences a bad Chicken Wings year....that's not good...  But what happens when next year prices plummet well below average?  Operating Margins go up sky high perhaps exceeding CMG for the year.

Right now....  CMG may have had Operating Margins of 25% at some point in time.... They do not anymore... If Scottrade's numbers are accurate the Operating Margin is more liek 14.6%.

Look at a stock like (CBOU).  At 2.6% operating margins one would think the stock would be trading in the duldroms...  Not spiking over 100% in 12 months and marching towards its 52 week high as we speak.

Yet CBOU is doing just fine.....  Just fine yet with hideous operating margins.

What is going on?

LINE OF BUSINESS!!!!!!!

It matters to research CBOU further than whatever the numbers say on a sheet of paper. 

Last year CBOU never sold Lunch.... No Ovens at any shop....
Guess what?   Soon.....Starting this year....  That all changes wtih CBOU putting Ovens in all their stores and they are about to serve Lunch to the masses.....

They boast a possibly 3% increase to same store sales right out of the gate....which is huge....   That impacts Operating Margins.... That opens Caribou to a brand new line of Business for them.....

That.... Is.....Game....Changer.....INFO..... You would not even bother to look at because you went and BALKED at the Operating Margin or whatever statistics CBOU is deeply poor at right now.

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