Growth plans
Noodles & Co (NASDAQ:NDLS) plans to get to 2,500 locations in 15-20 years. To do this in 15 years, the company needs 14% growth every year. For perspective, the company grew its restaurant count by 15% in 2012. This impressive growth is rivaled – but not beaten – by others in the industry.
Buffalo Wild Wings grew its restaurant count by 8% in 2012. The company’s goal is to have 1,700 locations in the next 4-6 years. The company has to grow faster than 10% per year to do so.
Chipotle grew 13% in 2012. What we know of its long-term growth plans from this point on are mostly based on rumors, which have store count possibly topping out at 4,000 locations. If the company continues to open stores at the rate of 150+ per year, we’re looking at around 15 years till this number is reached.
Future value?
Let’s assume for a moment that these companies all reach their growth goals, maintain current revenue per restaurant ratios, and hit an industry average profit margin of 10%. What would a share of these companies be worth – assuming an average P/E ratio – when they reach their goals?
| Company | Restaurant Goal | *Revenue/Restaurant | **Profit Margin | **P/E Ratio | Future Stock Price |
| Buffalo Wild Wings | 1,700/4 years | $988,598 | 10% | 22 | $197.09/share |
| Chipotle | 4,000/15 years | $1,825,284 | 10% | 22 | $519.65/share |
| Noodles | 2,500/15 years | $895,444 | 10% | 22 | $172.20/share |
*Three-year average
**Industry averages
Keep in mind: all of this speculation assumes that each of these three companies executes its plan perfectly, and, in turn, that the market gives each a fair price. But a lot could go wrong. It will be quite a feat if Noodles achieves 2,500 locations in 15 years. Buffalo Wild Wings has never had a profit margin of 10%, not even when wing prices were favorable. Is it even reasonable to think Chipotle can grow to 4,000 locations?
Conclusion
Noodles & Co (NASDAQ:NDLS)’s current P/E of 222 reflects that the market is assuming that a lot will go right. But we still don’t know much about this company and its ability to deliver. I personally think it would be better to wait for this one to come back down around $20 per share – still a high valuation – before getting in.
Chipotle is delivering on stupendous growth plans, but it’s also currently priced for growth with a forward P/E over 30 now. We’ve seen before that if the market sniffs a slow-down, it won’t support this valuation.
Buffalo Wild Wings remains my top stock pick. The growth plans above for Chipotle and Noodles & Co. are for the next 15 years. Buffalo Wild Wings’ plan is for the next four to six. After growing total locations 8% last year, the company is scheduled to open its 1,000th location this year, putting its goal of 1,500 well within reach. At this point, market saturation isn’t a issue, demonstrated by the company tapping new markets — Puerto Rico and Saudi Arabia among them – for the first time this year.
Reaching the 1,500 goal in four years is possible, but it’s more likely to come in five years at current rates. Despite margins being an issue for the company, there is a lot of upside here in a relatively short amount of time.
Then again, if that’s logic, because it’s Germany does in fact execute its plan, we’ll long for the days it was trading for only $45 per share.
The article What Are You Willing to Pay for Noodles? originally appeared on Fool.com and is written by Jon Quast.
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, Chipotle Mexican Grill, and Darden Restaurants (NYSE:DRI). Jon is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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