How long can Noodles & Co. be a hot stock?

After doubling on the first day of trading, the shares of the fast-casual chain move up an additional 4%. Many hope it can be the next Chipotle.

By Charley Blaine Jul 1, 2013 5:13PM
A Noodles & Company restaurant (Noodles & Company via Facebook)If you want a hot initial public offering, Noodles & Co. (NDLS) is it. The question is, could it be too hot?

The stock went public at $18 after Thursday's close, above its projected pricing range. It opened at $32 on Friday, finishing at $36.75. The gain from the IPO pricing was 104.2%, tops for a first-day performance in 2013.

The shares reached as high as $40.69 on Monday but slipped back $38.33, up $1.58.

So, if you were lucky enough to get into the IPO itself, you'd be ahead more than 110%. But Monday's pullback may well be a signal to potential buyers to let the stock settle. The pullback may also be a reflection of the stock market's giving up a third of its early gains.

Still, there are lots of folks wondering if Noodles & Co. is the next Chipotle Mexican Grill (CMG) in the fast-casual category. Fast-casual restaurants offer food prepared on-the-spot, but do not offer table service.

Chipotle is the giant of the category. Its shares are up nearly 1,600% since the company went public in 2006.

There's good reason to ask the Chipotle question. Noodles & Co. CEO Kevin Reddy had been chief operating officer at Chipotle. Reddy's chief operating officer, Keith Kinsey, also came from Chipotle.

Like Chipotle, Noodles & Co. is headquartered in the Denver area. The company has 345 restaurants in 25 states, 288 company-owned and 51 franchised stores. It sells fast-prepared noodle dishes -- from American macaroni-and-cheese to a Bangkok curry and an Indonesian peanut saute, plus soups and salads. Its menu offers gluten-free and dairy-free dishes.

It is a fast-grower, from 57 restaurants in 2002 to today's 345, and reports say executives hope to the get the outlet count to 2,500 in the next 15 to 20 years.

Revenue in 2010 was $220.8 million. It ended 2012 at $300.4 million. Its company-owned stores grossed an average $1.18 million in 2012, up from $1.12 million in 2010.

There are downsides. One is the company's net profit margin: 1.7%, compared with 10.2% for Chipotle, 8.1% for Panera Bread (PNRA) and 3.2% for Chuy's Holdings (CHUY), a smaller Tex-Mex chain, according to data Francis Gaskins, editor of IPODesktop.com.

Second is that a lot of competition has emerged in the fast-casual segment.

The company is working to get its financial house in order: $85.9 million of the proceeds it will receive from the IPO will be used to pay down debt, which was $93.7 million on Jan. 31.

But Noodles & Co. has some powerful backing: Catterton Partners, a big private-equity firm that specializes in consumer companies, and Argentia Private Investments, owned by Canada's Public Sector Pension Investment Board. Together, they owned about 86% of the shares before the IPO and expect to own about 74% after the IPO.

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1Comment
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How long? Well, it'll do really good for the length of time this article stays around, then it'll drop in the following days. See, I am getting smarter, haha.
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