A restaurant chain stock? In this economy? Admittedly, the sector is replete with high-risk plays, but an impressive upside is possible, with the correct business model, And with the aforementioned in mind, California Pizza Kitchen (NASDAQ: CPKI) is worth a review.California Pizza Kitchen offers a casual dining experience for the 'premium pizza' segment, but also features pastas and salads.
The company has had a slow new store opening philosophy that's historically not favored by Wall Street, but in this 'really challenged' retail environment – characterized by the 'frugal consumer' – that stance may ultimately not hurt the company that much: it might even turn out to be a blessing in disguise.
To be sure, macroeconomic headwinds will continue to weigh on restaurant traffic, but the argument forwarded here is that the California Pizza's unique ingredient formula --- it tries flavor combos other don't --- and its ability to spot food trends, will spark a quicker bounce-back as the U.S. economy starts to recover. The First Call F2009 / F2010 EPS estimates for CPKI are 70 cents / 81 cents.
Still, in deference to the devastation that a recession can visit on the restaurant chain sector, a tight Stop Loss has been deployed: we're not going to tolerate any nonsense if the U.S. economy does not give California Pizza's shares at least a fighting chance.
Stock Analysis: California Pizza Kitchen is a high-risk stock. Consider buying a 25% position in CPKI now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your CPKI position in the first half of 2009. Sell / Stop Loss if you were to buy shares in this company: $9.50.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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Reader Comments (Page 1 of 1)
5-15-2009 @ 6:19PM
John said...
A very poor value!!!