Noodles & Co (NDLS) Soars…But Is it a Buy?

Last week, Noodles & Co (NASDAQ:NDLS) soared on the first day of its initial purchase offering. The stock price of this fast casual giant rose a whopping $18.75 in its first day, a remarkable gain of 104.17% in just one day.

While this is all good news for investors who got an early piece of the IPO, what everyone wants to know is where the stock is headed next.

Bullish trends

Assessing whether or not to buy Noodles & Co (NASDAQ:NDLS)’s stock today is a bit of a mixed bag, and it’s a much different endeavor than assessing the businesses prospects. At this point, the stock is potentially either an overvalued IPO stock or a bullish healthy eating play.

The bullish case for Noodles comes from the favorable restaurant trends it has at its back. When you look at the landscape of fast food dining in the U.S., there seems to be a long-term shift in consumer trends. It seems to me that parents are choosing to introduce their kids to fast food that’s a bit healthier and fresher than in the past. Stock prices back it up; aside from McDonald’s Corporation (NYSE:MCD), no fast food stock has held a candle to rapidly growing fast casual giants like Panera Bread Co (NASDAQ:PNRA) and Chipotle Mexican Grill, Inc. (NYSE:CMG).

The research backs this idea of changing preferences in restaurant food. For 2013 organic produce, quinoa, and gluten-free foods were listed among the top four food trends by eatingwell.com. Not to mention that locally sourced produce and meats were named the top restaurant trend for 2013 according to a survey by the National Restaurant Association.

Noodles & Co (NASDAQ:NDLS) is not Whole Foods Market, Inc. (NASDAQ:WFM), but there’s no denying that fast casual chains like Noodles feel fresher and are a slightly healthier choice than the McDonald’s Corporation (NYSE:MCD) of the world. In my view, these trends benefit Noodles & Co (NASDAQ:NDLS), and they’re the chief reason why its stock shot up so high in its initial offering.

Should you buy Noodles & Company?

The problem with buying Noodles & Co (NASDAQ:NDLS) right here really has nothing to do with its underlying business. The problem is just simply that it is an IPO that has skyrocketed at the open. You don’t need to do much research to see why buying IPO’s is a bad idea. Nearly all high profile IPO’s in recent memory–such as Pandora Media Inc (NYSE:P), Facebook Inc (NASDAQ:FB), and Groupon–have flopped after strong initial offerings.

Right now, all Noodles has going for it is good prospects–that’s not enough. My recommendation is to keep Noodles & Co (NASDAQ:NDLS) on your radar for a few quarters, while you see how the company performs, so that you can appropriately value it. In the meantime you can buy a few strong performers in the fast casual space right now.

Fast Casual Giants: cheaper than you’d think

Panera Bread Co (NASDAQ:PNRA) has increased in value three times over in the past three years. That’s pretty impressive, but it’s still no where near the (remarkable) seven-bagger that Chipotle Mexican Grill, Inc. (NYSE:CMG) has registered over that time. That said, they’ve gone up for a reason.