If you think the proper way to value Panera is based upon future dividends or buy-backs, you won't get very far. Pnra puts all its cash flow into building new stores. The ROI is so high that paying dividends and/or buying back stock and thereby slowing growth, would make no sense. Having some debt, whether for dividends, buybacks or quicker build-out arguably might. But I understand management's reluctance to have debt which hurt them in the old ABPCA days, or to grow any faster than 2-3 new stores a week.
Eventual cash returns to investors, however far out in the future and in whatever form, are ultimately the ONLY way to value an investment (in my opinion). What other reason is there to invest?
Reinvestment of cash flow is a certainly a great idea when ROI is high. You seem to be of the opinion that the return to shareholders will be delayed but great enough to have a present value sufficient to justify the current market cap.
Absolutely correct! I did not see this post when constructing mine. My suspicion is that the PNRA bulls are unwilling to use a valuation methodology that probably won't justify the present lofty price of the stock.
I disagree. If Pnra keeps doing what they have been doing -- growing stores and earnings at good rates-- the stock price will rise despite no expectation of ever getting a dividend. Look at Berkshire Hathaway. Investors are happy to own a stock if they believe they will be able to sell at some point with a compounded yield significantly exceeding that of the relevant index -- here the S&P 600. The key is the belief that the company can invest cash flow for strong returns. If that is the case, dividends are not necessary. Shareholders can, of course, create their own dividend by selling say 5% each year if they need income or want to diversify. I am a long term bull but think the stock in the short term is more likely to hit 45 than 55, only because it got ahead of what earnings and growth presently justify. The future, though, is very bright.
Basic finance theory stipulates that stocks are valued on the present value of future cash flows. Dividends are a proxy for cash flow. Just because a company does not pay them now doesn't mean that their ultimate payment should not be factored in.