PBPB: Closing Best Idea Short

We added Potbelly Corporation (PBPB) to our Best Ideas list on 11/19/2013 at $28.15/share.  Since this time, FY14 EPS estimates have been revised down from $0.39 to $0.19 and the share price has acted accordingly (down ~60%).  With this note we are removing short PBPB from our Best Ideas list.


PBPB still has issues that give us cause for concern, but we feel our short thesis is largely played out.  At 9.6x EV/EBITDA (NTM), the stock screens rather attractively relative to other restaurant companies and will begin rolling over some fairly easy comps following 3Q14.  We believe FY14 and FY15 EPS estimates of $0.19 and $0.25, respectively, are reasonable despite the fact that we are yet to see management deliver tangible same-store sales drivers.


Considering a more reasonable valuation, reset expectations, and high short interest (~34% of float), we believe the short setup is no longer favorable from a risk/reward perspective.   Our move to the sidelines, however, does not make us fans of the stock.  Declining same-store sales, traffic, margins and AUV's continue to be red flags.  Our biggest issue with the company, however, is its decision to relentlessly pursue a questionable growth strategy (12-15% unit growth in FY14) when the fundamentals suggest it shouldn't be growing at all.  The one scenario under which we'd expect to see notable downside from here is if management were to significantly slash projected new unit growth, and we've seen no signs of this happening.


We continue to believe 2016 EPS estimates of $0.60 are too aggressive, but that is much further out.  Staying short today at these levels is no longer compelling.


Research Recap:

PBPB: Staying Short (07/10/2014)

Investment Ideas: Shorts (04/16/2014)

PBPB Lays an Egg (02/19/2014)

PBPB: Not Worthy of the Multiple (11/19/2013)

Potbelly (PBPB): The Latest Restaurant IPO (09/19/2013)


PBPB: Closing Best Idea Short - 10 1 2014 10 26 35 AM


Howard Penney

Managing Director


Fred Masotta


Did the US Economy Just “Collapse”? "Worst Personal Spending Since 2009"?

This is a brief note written by Hedgeye U.S. Macro analyst Christian Drake on 4/28 dispelling media reporting that “US GDP collapses to 0.7%, the lowest number in three years with the worst personal spending since 2009.”

read more

7 Tweets Summing Up What You Need to Know About Today's GDP Report

"There's a tremendous opportunity to educate people in our profession on how GDP is stated and projected," Hedgeye CEO Keith McCullough wrote today. Here's everything you need to know about today's GDP report.

read more

Cartoon of the Day: Crash Test Bear

In the past six months, U.S. stock indices are up between +12% and +18%.

read more

GOLD: A Deep Dive on What’s Next with a Top Commodities Strategist

“If you saved in gold over the past 20 to 25 years rather than any currency anywhere in the world, gold has outperformed all these currencies,” says Stefan Wieler, Vice President of Goldmoney in this edition of Real Conversations.

read more

Exact Sciences Up +24% This Week... What's Next? | $EXAS

We remain long Exact Sciences in the Hedgeye Healthcare Position Monitor.

read more

Inside the Atlanta Fed's Flawed GDP Tracker

"The Atlanta Fed’s GDPNowcast model, while useful at amalgamating investor consensus on one singular GDP estimate for any given quarter, is certainly not the end-all-be-all of forecasting U.S. GDP," writes Hedgeye Senior Macro analyst Darius Dale.

read more

Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more