Zoe's Kitchen: Still Cooking

08/31/2016 7:00 am EST

Focus: STOCKS

A disappointing earnings report for this fast-casual restaurant chain has created an opportunity for long-term investors, asserts Jason Williams in The Wealth Advisory.

Zoe’s Kitchen (ZOES) announced quarterly earnings yesterday after the market closed. Despite EPS being in line with estimates and revenues only missing by less than a million, the stock got hammered when management adjusted the full-year guidance.

But the thing is, they only lowered revenue expectations by a million for the full year and shaved comparable store sales by half a percent on the low end and a percent on the high end.

They’re still confident that they’ll get to that long-term goal of 1,600 total stores in the US, though.

So, revenues were up over 20% from the same quarter last year, comparable sales were up 4%, and earnings per share was right on target.

I understand a slight drop for the reduced guidance. I mean, if management isn’t as confident, why should investors be?

But the stock’s down almost 20% for a 1% cut in comparable sales and a tiny reduction in overall revenue. That’s just crazy.

Taking some profits off the table after an incredible year (ZOES was up over 30% in 2016 so far) is one thing.

But panicking and selling the stock down that much on slightly reduced guidance is another. The major drop comes from people who are following headlines and not reading reports.

Zoe’s is still a great company with firm plans to keep on growing. Now that the shares are down 20% from pre-earnings prices, it’s a great stock that’s on sale.

I’ll reiterate, this is a great company. It’s a growth story, and it’s not going to stop growing just because of some panicking sellers.

This drop in prices is an opportunity for wise, long-term investors to add to your position (or start one if you haven’t already).

Don’t fall victim to the panic of misinformed investors. If anything, take advantage of them and get a great stock at a sweet sale price. Zoe’s Kitchen is still a stock I’m adamant that all Wealth Advisory readers must own.

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By Jason Williams, Editor in The Wealth Advisory

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