The Market Goes Nuts for Noodles & Co (NDLS)-Here’s Why

This last year has seen a few successful restaurant IPOs, with the notable Noodles & Co (NASDAQ:NDLS) doubling its first day out on June 28. It added more on July 1, eventually settling up 4.68%. After such a big move on its first two days of trading will it just end up a limp noodle, or will it stick to the wall?

How other casual dining IPOs have performed

It seems the market has an insatiable appetite for casual dining IPOs. Two up-and-comers that debuted in 2012 were Del Frisco’s Restaurant Group Inc (NASDAQ:DFRG) and Bloomin’ Brands Inc (NASDAQ:BLMN). Bloomin’ owns Outback Steakhouse, Bonefish Grill, Fleming’s Steakhouse, Carrabas Italian Grill, and Roy’s. Most of their restaurants are medium to high casual dining price points, especially Fleming’s and Roy’s, both of which are considered upscale.

Bloomin’ Brands has a high trailing P/E of 46.94, but the forward P/E comes down to 18.43. It has a PEG at 1.33. The company just debuted last summer, and the stock has already doubled from a low of $11.57 last August.

Bloomin’ trades at 10.44 times book, but analysts like the name with 5 Strong Buys, 5 Buys, and only 1 Hold. Analysts predict a five year EPS growth rate of 16.69%.

Del Frisco’s has a market cap $509.43 million. It owns and operates 34 restaurants in 19 states under three brands: Del Frisco’s Grille, Sullivan’s Steakhouse, and Del Friscos Double Eagle Steak House. Del Frisco’s is at the higher price point of the casual dining continuum.

The company has a high P/E at 38.16 with a forward P/E of 19.82. Its price to book stands at 1.98.

The stock has been performing well, hitting a 52 week high of $21.75 from a low of $11.73 last August; again, almost a doubling since its debut. As a small cap name it has few analysts, but they like Del Frisco’s a lot, with 2 Strong Buys and 3 Buys. They predict a 15.50% five year EPS growth rate.

Is it really a baby Panera?

It seems what the market has been really craving, more so than a Bloomin’ or Del Frisco’s or even a Chuy’s Holdings Inc (NASDAQ:CHUY), something that looks a whole lot like Panera Bread Co (NASDAQ:PNRA).

If Noodles & Co (NASDAQ:NDLS) had settled close to its IPO pricing it would have had a similar market cap to tiny Del Frisco’s, but now the market cap stands at $953.31 million. Noodles has ten times the number of restaurants as Del Frisco’s at 343 in 26 states (291 company-operated, the rest franchised).

Noodles’ trailing P/E is a whopping 192.35. A cursory glance at most of its stats is worrying with total cash of just under $1 million and over $100 million in debt. Most of the IPO proceeds are dedicated to paying down that debt. Margins aren’t compelling either; the operating margin is 5.27% and the profit margin is 1.54%. Finally, EV/EBITDA is 27.85. What is the market seeing at these lofty levels?