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Panera Bread Company Message Board

  • re_think_it re_think_it Jun 8, 2005 11:21 PM Flag

    Are we havin' fun yet?

    I would paraphrase that to say, "Are we enjoying the game yet?"

    There has been at least one comment demonstrating understanding; and one which has not; in all the rubbish which has been written lately. The "not" comment is the often recycled, "They're selling bread not rocket science." While that is true, it misses the point. Certainly the product is of importance; but it is only one portion of the analysis. Even more important is the business model and its execution. Clearly, PNRA has done well.

    The other point (the one demonstrating understanding) is the observation that based on the current year anticipated earnings; and the recent trailing P/E, the stock could easily rise into the upper 70s later on. What will slow this down is the fact that many small investors would sell as the price got into the upper 60s and low 70s, providing points of resistance.

    Which is why I have chosen to play the out-of-the-money short calls for modest stakes. It satisfies my gambling excitement needs; but I always try to limit my potential losses at the "casino." For example, I shorted the May 60 Calls in early March at 1.90. I covered them at .10 approximately 3 days before expiration (the stock was behaving eradically at the end, bouncing around at 60.). I then reloaded "shortly" after, shorting Aug 65 calls, again at 1.90. I will still make a profit if the stock stays under 66.90. Had I shorted the shares at 60, I would still be underwater until the stock went below 60. Naturally, my profit potential is limited, but my buffer on this quite volatile issue is extremely useful. This time, under 65 at the expiration gives me some more play money to enjoy.

    Having explained all that, I must admit that I am concerned with the current action. To play this game, one must carefully watch the institutional holders and the shorts. At this juncture, the big money has reduced its holdings to "only" 93% of the float. The short interest is correspondingly down from its highs as well. This warns me that the lastest run to take out the nervous shorts is over, and the institutions may be preparing to push for another leg up, into the upper 60s or even 70s. With this in mind, I will need to watch the action very closely. Today may have been only a breather in preparation. Even I was surprised at how fast we covered the ground leading up to 65.

    Enjoy the game.

    ReThink It

    By the way, before anyone accuses me of being a technician, I will say that in most of my investments I rely much more on fundamentals. PNRA, however, is a "night at the casino."

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