P.F.Chang’s (NASDAQ:PFCB) is one of those public restaurant chains that you just can’t necessarily judge a book by its cover.  Or maybe by the analogy "you can’t judge a restaurant by its food or its crowd."  Today PFCB shares are hitting the lovely and dubious list of 52-week lows.  Shares are under $31.20, and the prior range is $31.42 to $47.10.  Trading volume is not even 500,000 shares, and the average daily volume is close to 625,000 shares.

If this is pertaining to its core restaurants then it is a head scratcher.  In Houston you have to wait an hour or more for a table with frequent regularity and you often have the same sort of wait for downtown Chicago.  Franlky, both the food and the dining experience at the core restaurants have never been a disappointment outside of having to wait.  Obviously you cannot judge a whole franchise or a whole company based on two major metro locations that are in hot areas of the city and that don’t know what watching the pocketbook means.  Its newer Pei Wei initiative may be playing against it, but that is merely conjecture.  Operating costs per location is far less than at flagship P.F. Chang’s locations, but you know it when you walk in and the food is far less impressive than the flagship.

The analysts that cover PFCB are no longer under a real positive bias and the average price target is only around $39.00.  With $1.34 now expected for fiscal DEC-2007 and $1,56 EPS expected for fiscal DEC-2008, the forward numbers don’t seem overly expensive. 

Investing in hot food chains that revolve mostly around a single concept or at least closely tied comcepts is often a more wild ride.  It’s great when the trend is its friend, but being on the wrong side of company maturing or that has an execution flaw is as bad as eating by the sewer.  When these concepts start to mature, the logical step is to look for a buyer or to look for a new growth chain. 

The company lowered its expectations at the end of July and shares slid around the time before and after by about 10%.  In mid-August this did quite well and shares went back to over $37.00.  With its performance of late it leaves one of two conclusions: 1) the company is off center on its newer concept stores, or 2) it maybe wasn’t cautious enough with last guidance.

Jon C. Ogg
September 13, 2007

Jon Ogg can be reached at [email protected]; he produces the 24/7 Wall St. Special Situation Investing Newsletter and he does not own securities in the companies he covers.

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