Noodles & Co (NASDAQ:NDLS)is a newcomer to the fast-casual restaurant sector. Even before the IPO I had hoped this company–on the top-ten growth list for several years–would go public so that I could get a piece of the action. But since the company went public my outlook has been cautious, and a 16% decline from recent highs may confirm this company’s ongoing stock problem: valuation. Why is this company still overvalued?
Background
Noodles & Co (NASDAQ:NDLS) currently comes at a premium price, with a P/E ratio of 200, and Forward P/E of 73. The current P/E ratio is slightly skewed since it reflects one-time costs associated with the IPO, but even still the Forward P/E is much higher than some rapid-growth competitors.
Chipotle Mexican Grill, Inc. (NYSE:CMG) sports a P/E ratio nearly twice the industry average of 22, but the market is willing to support this valuation. In the most recent quarter revenue was up 18% year-over-year, net income was up 7.5%, and it opened 44 new locations. This growth is among the best in the business, but for Chipotle Mexican Grill, Inc. (NYSE:CMG) this is business as usual. The company has no plans to slow down, which makes its valuation understandable.
Buffalo Wild Wings (NASDAQ:BWLD)also has a relatively high P/E ratio, but like Chipotle Mexican Grill, Inc. (NYSE:CMG) it seems warranted. In its most recent quarter Buffalo Wild Wings (NASDAQ:BWLD) increased revenue 28%, net income was up 41%, and the company opened 21 new locations. These openings are just the tip of the iceberg, as management expects to open up to 62 more locations before years end, and 500 over the next couple of years. Judging past performance, I see no reason not to expect that this will indeed happen.
Both Chipotle and Buffalo Wild Wings have high forward P/E’s, but both are also growth titans. Yet, Noodles commands a forward P/E twice that of Chipotle and triple that of Buffalo Wild Wings (NASDAQ:BWLD). Is it worth that price?
The Good
Without a doubt, Noodles & Co (NASDAQ:NDLS) must continue to grow in order to justify its current valuation. As mentioned, the company has been a top-ten grower in the restaurant industry, and this year is no exception. Management reported that it opened 21 new locations in the 2nd quarter–this looks to position it to achieve 50 openings this year, or 15% unit growth. Get used to this kind of growth–this 348-unit chain is expecting to open 2,500 location in 15 years.
Comp-sales can be a good way to measure customer satisfaction, as it often is directly related to restaurant traffic. Last quarter, Noodles increased comp-sales 4.4%, growing this metric for the 29th time in 30 quarters.
Restaurant unit growth combined with ever-increasing comp-sales bode well for this chain’s profits. These are its strengths. Yet there are some lingering concerns.
The Bad
In a previous article, I pointed out that Noodles’ profit margin is significantly lower than its competitors.
Although the profit margin is significantly lower than its competitors’ margin, Noodles’ margin improved this last quarter, which may seem like good news. But management stated that the principle reason for the improved margin is lower food costs coupled with higher menu prices.
Don’t expect this benefit to be carried forward. Management stated that food costs should go up in the 2nd half of the year, and there won’t be any more price increases this year. Profit margin should therefore fall once again.
Noodles is generating a ton of revenue, as company owned restaurants rake in almost $1.2 million each per year. Even with all the new restaurants coming, if this margin issue is not addressed the profits needed to justify this valuation won’t come.
The Ugly Conclusion
A popular restaurant concept and an extremely fast expansion plan have made Noodles & Co (NASDAQ:NDLS) the talk of the town. But with a forward P/E of over 70, this chain seems to be overvalued, even after the decline from recent highs. I’ll sit one out until management comes up with a concrete plan to improve margins.
Jon Quast has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings and Chipotle Mexican Grill. The Motley Fool owns shares of Buffalo Wild Wings and Chipotle Mexican Grill.
Artificial intelligence is the greatest investment opportunity of our lifetime. The time to invest in groundbreaking AI is now, and this stock is a steal!
It’s the revolution reshaping every industry on the planet.
From driverless cars to medical breakthroughs, AI is on the cusp of a global explosion, and savvy investors stand to reap the rewards.
Here’s why this is the prime moment to jump on the AI bandwagon:
Exponential Growth on the Horizon: Forget linear growth – AI is poised for a hockey stick trajectory.
Imagine every sector, from healthcare to finance, infused with superhuman intelligence.
We’re talking disease prediction, hyper-personalized marketing, and automated logistics that streamline everything.
This isn’t a maybe – it’s an inevitability.
Early investors will be the ones positioned to ride the wave of this technological tsunami.
Ground Floor Opportunity: Remember the early days of the internet?
Those who saw the potential of tech giants back then are sitting pretty today.
AI is at a similar inflection point.
We’re not talking about established players – we’re talking about nimble startups with groundbreaking ideas and the potential to become the next Google or Amazon.
This is your chance to get in before the rockets take off!
Disruption is the New Name of the Game: Let’s face it, complacency breeds stagnation.
AI is the ultimate disruptor, and it’s shaking the foundations of traditional industries.
The companies that embrace AI will thrive, while the dinosaurs clinging to outdated methods will be left in the dust.
As an investor, you want to be on the side of the winners, and AI is the winning ticket.
The Talent Pool is Overflowing: The world’s brightest minds are flocking to AI.
From computer scientists to mathematicians, the next generation of innovators is pouring its energy into this field.
This influx of talent guarantees a constant stream of groundbreaking ideas and rapid advancements.
By investing in AI, you’re essentially backing the future.
The future is powered by artificial intelligence, and the time to invest is NOW.
Don’t be a spectator in this technological revolution.
Dive into the AI gold rush and watch your portfolio soar alongside the brightest minds of our generation.
This isn’t just about making money – it’s about being part of the future.
So, buckle up and get ready for the ride of your investment life!
Act Now and Unlock a Potential 10,000% Return: This AI Stock is a Diamond in the Rough (But Our Help is Key!)
The AI revolution is upon us, and savvy investors stand to make a fortune.
But with so many choices, how do you find the hidden gem – the company poised for explosive growth?
That’s where our expertise comes in.
We’ve got the answer, but there’s a twist…
Imagine an AI company so groundbreaking, so far ahead of the curve, that even if its stock price quadrupled today, it would still be considered ridiculously cheap.
That’s the potential you’re looking at. This isn’t just about a decent return – we’re talking about a 10,000% gain over the next decade!
Our research team has identified a hidden gem – an AI company with cutting-edge technology, massive potential, and a current stock price that screams opportunity.
This company boasts the most advanced technology in the AI sector, putting them leagues ahead of competitors.
It’s like having a race car on a go-kart track.
They have a strong possibility of cornering entire markets, becoming the undisputed leader in their field.
Here’s the catch (it’s a good one): To uncover this sleeping giant, you’ll need our exclusive intel.
We want to make sure none of our valued readers miss out on this groundbreaking opportunity!
That’s why we’re slashing the price of our Premium Readership Newsletter by a whopping 70%.
For a ridiculously low price of just $29, you can unlock a year’s worth of in-depth investment research and exclusive insights – that’s less than a single restaurant meal!
Here’s why this is a deal you can’t afford to pass up:
Access to our Detailed Report on this Game-Changing AI Stock: Our in-depth report dives deep into our #1 AI stock’s groundbreaking technology and massive growth potential.
11 New Issues of Our Premium Readership Newsletter: You will also receive 11 new issues and at least one new stock pick per month from our monthly newsletter’s portfolio over the next 12 months. These stocks are handpicked by our research director, Dr. Inan Dogan.
One free upcoming issue of our 70+ page Quarterly Newsletter: A value of $149
Bonus Reports: Premium access to members-only fund manager video interviews
Ad-Free Browsing: Enjoy a year of investment research free from distracting banner and pop-up ads, allowing you to focus on uncovering the next big opportunity.
30-Day Money-Back Guarantee: If you’re not absolutely satisfied with our service, we’ll provide a full refund within 30 days, no questions asked.
Space is Limited! Only 1000 spots are available for this exclusive offer. Don’t let this chance slip away – subscribe to our Premium Readership Newsletter today and unlock the potential for a life-changing investment.
Here’s what to do next:
Head over to our website and subscribe to our Premium Readership Newsletter for just $29.
Enjoy a year of ad-free browsing, exclusive access to our in-depth report on the revolutionary AI company, and the upcoming issues of our Premium Readership Newsletter over the next 12 months.
Sit back, relax, and know that you’re backed by our ironclad 30-day money-back guarantee.
Don’t miss out on this incredible opportunity! Subscribe now and take control of your AI investment future!
I work for one of the largest independent financial publishers in the world – representing over 1 million people in 148 countries.
We’re independently funding today’s broadcast to address something on the mind of every investor in America right now…
Should I put my money in Artificial Intelligence?
Here to answer that for us… and give away his No. 1 free AI recommendation… is 50-year Wall Street titan, Marc Chaikin.
Marc’s been a trader, stockbroker, and analyst. He was the head of the options department at a major brokerage firm and is a sought-after expert for CNBC, Fox Business, Barron’s, and Yahoo! Finance…
But what Marc’s most known for is his award-winning stock-rating system. Which determines whether a stock could shoot sky-high in the next three to six months… or come crashing down.
That’s why Marc’s work appears in every Bloomberg and Reuters terminal on the planet…
And is still used by hundreds of banks, hedge funds, and brokerages to track the billions of dollars flowing in and out of stocks each day.
He’s used this system to survive nine bear markets… create three new indices for the Nasdaq… and even predict the brutal bear market of 2022, 90 days in advance.