Au Bon Pain: Stale! Fresh! Stale! Fresh!

For a company that went public only four months ago, Au Bon Pain has already attracted a crowd that most companies try to avoid: short-sellers. The short interest in the stock has jumped to nearly 800,000 shares from just 61,500 a month ago. Why? The shorts think this fast-growing Boston-based chain of urban cafes will stumble. But Au Bon Pain's fans aren't daunted, and, to the shorts' dismay, the stock, initially offered at 9, has risen to 13.

Tom Frank, senior portfolio manager and research director at Dreyfus, the giant mutual-fund manager, thinks Au Bon Pain is an appetizing investment. The chain specializes in fresh-baked French bakery items, such as baguettes, croissants, and muffins, plus sandwiches, salads, and soup.

Never mind that the stock, based on four quarters of profits, trades at a heady price-earnings ratio of 41, says Frank. True, other restaurant chains have much lower multiples: 15 for McDonald's and 19 for Wendy's International. "But Au Bon Pain has found the right concept in urban restaurants," says Frank. He's impressed by its management, which is setting up clusters of the self-service cafes in New York, Philadelphia, and Boston.

Frank also notes that the company has had fast growth despite the recession. And he expects an even sharper breakout in sales and earnings next year, when he sees profits leaping to 51~ a share on sales of $87 million, vs. an estimated 35~ on sales of $68 million for 1991 and 1990's net of 30~ on $57 million in sales. Frank says big Midwestern cities, such as Chicago, will be Au Bon Pain's next area of expansion.

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