Making the Case for Panera Bread Company

12/15/2008 10:11 am EST

Focus: STOCKS

Nick Perry

Equity Options Trader, Schaeffer's Investment Research

Looking for an interesting situation? Check out Panera Bread Company (PNRA). This stock is up more than 30% this year, while the Dow Jones Industrial Average (DJIA) is down nearly that same amount. Yet, despite this strong performance, analysts are on the sidelines and short interest is high. In other words, there appears to be sideline money that could continue to drive the stock higher. To see what I am looking at, let's start with the relative strength chart.


Chart Courtesy of Thomson Financial

This shows us the year-to-date performance of Panera compared to the Dow. Here we see that the stock has held its own for entire year while the market has struggled. The outperformance makes the stance of the Street somewhat baffling.

According to Zacks, only 4 of 15 analysts (27%) rank the stock with a "buy" rating. In past posts, I have discussed the idea of "trapped bulls," where you have analysts who have been stuck in the bullish camp amid a downtrend. In that scenario, I view the stock as having a risk for downgrades as those bulls look for a place to escape.

In the case of Panera, we have the opposite scenario. I suspect that some on the Street might be feeling left out of the rally and could be looking for an entry point. This could help to provide buying demand on the dips.

Another factor to consider is short interest. According to data collected by our Quantified Analysis group, 36% of the stock's float is currently sold short. In other words, more than a third of the stock's float is tied up in these positions and would need to be bought back at some point.

A look to the intraday chart below suggests that we might already be seeing some short covering here. Three weeks ago, the stock bottomed near 36. At its best levels earlier this week, the shares traded near 53, a gain of roughly 47%.


Chart Courtesy of Thomson Financial

While Panera might not carry the sex appeal of a tech stock, some might find strong performance pretty attractive.

By Nick Perry of Schaeffer’s Trading Floor Blog

Related Articles on STOCKS