The Real Story: P.F. Chang's Is Overdone

P.F. Chang's China Bistro (PFCB - Cramer's Take - Stockpickr) is about as successful as a restaurant chain can be. Walk into your local P.F. Chang's at dinner time without a reservation and you'll likely go hungry for a while. However, loving a company and its stock do not have to go together like beef and broccoli.

The Consensus Story: P.F. Chang's remains a delicious growth idea. The company's casual Pei Wei concept will be the driver as new locations pop up all over the country. Earnings per share are expected to increase by only 9% in 2005, due to delays in construction of new stores. However, the consensus estimate for 2006 shows EPS growing 21% to $1.68, entitling the stock to a multiple in the low-to-mid $30s.

The Real Story: P.F. Chang's is operating on all cylinders and it will be quite difficult to surprise to the upside. In fact, there is a substantial risk that the company disappoints. Traffic growth is expected to be flat this year. The Street still views the stock as a go-go growth story, despite the fact that the days of 30%-plus annual earnings growth are over. Should the company fail to meet earnings expectations in 2006, aggressive investors could bail and the stock won't be rescued until the growth-at-a-reasonable-price investors step in.

What's reasonable? My model forecasts 2006 EPS of $1.61, which translates to a price of $38.64 -- assuming a P/E of 24 and that investors will still generously give the stock the 1.5 P/E-to-growth ratio that it currently enjoys. Of course, if P.F. Chang's disappointed investors again, would they be willing to continue to give the stock a PEG of 1.5? I'm not so sure. It's entirely possible that one more miss could change the P.F. Chang's investor profile completely; from those seeking aggressive growth to investors comfortable with lower but steady performance. The latter group tends not to bid up stocks and increase earnings multiples.