Chuy’s Holdings Inc (CHUY), Noodles & Co (NDLS), Jack in the Box Inc. (JACK): Are These 3 Restaurant Stocks Worth a Bite?

Noodle bowling

Noodles & Co (NASDAQ:NDLS) had one of the hottest IPOs of recent years. The stock surged to $40 after pricing at $18 back on July 2. The fast-casual chain that focuses on noodle dishes served in a bowl received net proceeds of $100 million to finance its store expansion plans. The company did have a slightly disappointing first quarter report, and the estimates don’t back up the stock trading at over 80 times forward earnings estimates.

Noodles & Co (NASDAQ:NDLS) released its first quarterly report as a public company for the second quarter of 2013. Noodles only registered 18.2% revenue growth, with 4.7% comp sales growth at company owned restaurants. It operates 348 locations in 26 states as of July 2, with plans of opening a total of 46 to 48 total restaurants for the year or roughly 24 stores for the second half of the year. The company has plans to grow its store base at a 15% annual rate, and one can quickly see the possibility of matching the 1,500 store base of Chipotle.

With a focus on fresh food and a fast-casual concept like Chipotle, the Noodles & Co (NASDAQ:NDLS) IPO was particularly hot because of the direct comparison. Investors incorrectly placed too much emphasis on the comparison and not the facts. Noodles & Co (NASDAQ:NDLS)’ recent growth rate doesn’t justify this amazing valuation.

Bottom line

All three companies will see years of expansion, and likely higher stock prices down the road. One major key to successful long-term investing is buying at attractive prices, which aren’t apparent in Chuy’s Holdings Inc (NASDAQ:CHUY) and Noodles’ current valuations. Investors should learn from the Chipotle lesson of how even one of the best-run restaurant stocks has had major sell-offs in its short time as a public company, whether due to market influences or company issues. The key is separating a company from a stock. Great companies with strong expansion plans will eventually see higher stock prices, but an investor buying at the right price will see the best returns.

The article Are These 3 Restaurant Stocks Worth a Bite? originally appeared on Fool.com and is written by Mark Holder.

Mark Holder and Stone Fox Capital Advisors have no positions in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.