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Noodles & Company Loses Some Steam

The dining chain reported a disappointing quarter


When Noodles & Company (NDLS) came public in late June, there were few on Wall Street who didn’t like the deal. After all, the shares rocketed by 104% on its first day of trading!

But with its first quarterly report as a publicly traded business, the enthusiasm has waned a bit. In today’s trading, the stock slipped over 10%.

Launched in 1995, Noodles is a fast-casual chain that serves up a diverse offering of cuisines including Asian, Mediterranean and American dishes. Customers can customize orders, and they have the option of either to-go or quick sit-down lunches where food is delivered to your table. The menu is still value-based, though, with the average per-person ticket at about $8.

The good news: The per-restaurant economics are lucrative. It costs roughly $725,000 to build a location and within three years, the cash-on-cash return is a juicy 30%.

Unfortunately, Noodle’s is slowing down, with the forecast of comparable sales at about 3% for the year. Last year, the rate was about 5.4%.

Then again, as the company gets larger, it is far from easy to crank out strong growth rates. Noodles currently has 348 locations across 26 states.

But perhaps the biggest issue is the valuation. Consider that Noodle’s shares are trading at 80 times forward earnings. This compares to Chipotle Mexican’s (CMG) 31X and Panera Bread’s (PNRA) 22X.

As is common with hot IPOs, the metrics can get out of whack. But with as the quarterly reports come in, the stock price will eventually come back to earth. This appears to be the case for Noodles.

Tom Taulli runs the InvestorPlace blog IPO Playbook. He is also the author of High-Profit IPO StrategiesAll About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media,

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