Value investors generally view companies trading at a low multiple of cash flow and book value and, of course, sales more favorably than those that do not (everything else being equal.) However, not all investors operate this way. Many also look at other factors when analyzing a company - like whether or not it has beaten expectations in its latest quarter.
This is an important factor to look at because there is always a chance that if a company does "beat The Street" analysts could crank up their estimates afterwards, which in turn could draw attention to the story. A company that positively surprises the analyst community could have a shot at doing it again down the road at some point. (For more on analyst expectations, be sure to read Analyst Forecasts Spell Disaster For Some Stocks.)
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Below are a few companies that beat expectations by 10% or more in their last reported quarter. These companies deserve a closer look. Interestingly, all are in the food business.
Cheesecake Factory (Nasdaq:CAKE): The one-time high flyer reported a better-than-expected first quarter. It earned 17 cents, whereas analysts had been expecting a 10-cent profit.
To be clear, Cheesecake Factory isn't extremely cheap by some measures. It currently trades at about 22-times this year's estimate of 76 cents. However, the multiple isn't outrageous, given that it is expected to grow at a nice clip between 2009-2010. In fact, the company is expected to earn 91 cents for 2010. That's an implied expected growth rate of about 20%. Interestingly, it also trades in the upper-end of its 52-week trading range, which will draw even more attention to it.
Chipotle Mexican Grill (NYSE:CMG): Chipotle earned 78 cents per share in its first quarter. That was sharply ahead of the 55 cents per share that analysts had been expecting.
But a closer look reveals that estimates seem to be creeping on up. In the last 60 days, the estimate for this year has gone up from $2.56-3.03 a share. And the estimate for 2010 has gone up from $2.99-3.49. That's a pretty sharp rise that will draw plenty of retail and institutional interest.
I'm liking how its stock price is performing as well. Whereas companies of many stripes seem to be struggling these days, CMG is actually trading toward the upper end of its 52-week trading range. Investors generally like to jump on the winners, and institutions looking to dress up their portfolio at quarter-end might take a particular interest.
Dominos Pizza (NYSE:DPZ): The pizza business has been a survivor over the years, and Domino's specifically has emerged as one of the top bananas - and for good reason. It offers a good product and consumers frankly like it, as evidenced by a recent survey on customer satisfaction. Regarding its first quarter, according to Reuters, "Excluding a gain from debt repayment efforts, Domino's reported earnings of 20 cents a share. Analysts on average were expecting 17 cents.”
Dominos beat expectations in the fourth quarter, as well. That's hardly a long-term trend, but not something that should be ignored either.
At present, the company trades at about 10-times this year's estimate. Very simply, it should be trading in the low teens at this point.
Interestingly, Papa John's (Nasdaq: PZZA) has beaten expectations in the last two quarters, too. Whether or not it will beat expectations in the future, or if Domino's will, in still unknown. But again, these things are head-turners, and investors could come knocking.
Bottom Line
Looking at companies that have beaten expectations, every once in a while, makes sense. Of the above-mentioned names, at present, Dominos looks the most promising. (Learn more about restaurant stocks in our article, Sinking Your Teeth Into Restaurant Stocks.)
