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The Real Story: At P.F. Chang's, It's Check Please!

P.F. Chang's China Bistro (PFCB) has been in The Real Story crosshairs since January , when I said the stock would fall below $39.

On Wednesday, the stock fell below that threshold, so I suggest shorts take their profits and move on. (The stock was trading at $39.76 recently today).

Let's assume the consensus is correct and P.F. Chang's will earn $1.32 a share this year. At $39, the stock is trading at 29.5 times earnings with a median long-term growth expectation of 22%. The stock's PEG ratio -- its price-to-earnings ratio divided by its growth rate -- of 1.3 isn't that expensive anymore. I question whether that growth rate is achievable, but again, we're going with the consensus.

Comparing P.F. Chang's with the broader restaurant industry shows that it's cheaper on some metrics but is underperforming the industry in some key areas as well. In other words, not a great buy or sell at this price, compared with its peers.

At the time that I first wrote about the company, analysts were split on the stock. Back then, there were 10 buy recommendations, 10 holds and one sell. Today, one buy and the sell have moved to holds, giving it an analyst scorecard of nine buys and 12 holds.

However, the shorts have become emboldened during the decline. There are currently 6.9 million shares short, or 28% of the float -- a huge number. That compares with 5.6 million shares short in the previous month and 4.9 million when my original story was published. It was a crowded short then but is even more so now. A good number or two when the company reports its second-quarter earnings on July 26, and the shorts may run for the hills.

I'm not saying the restaurant chain has seen the last of its troubles. Traffic growth is still a problem and the high cost of gasoline certainly won't help.

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