Noodles & Co (NDLS): Is This Restaurant Worth a Billion Bucks?

Back when I was in college I worked at the Olive Garden as a bartender. During a conversation with the head cook, he explained that the highest profit on the menu comes from spaghetti and meat sauce, as it cost less than $1 to prepare.

While Noodles serves more than just noodles and sauce, I do wonder why the company does not have higher margins. If it were expanding faster, with growth of 30%-40%, then I’d understand the low margins. However, when a company expands slowly, operates in a high margin business, and still has low margins, I view it as a sign of trouble; as everyone knows, pasta is the cheapest food to make.

Final Thoughts

With everything considered, I still expect that Noodles & Co (NASDAQ:NDLS) will trade significantly higher over the next year. Looking back, Chuy’s has gained 155% since its July 2012 IPO, and Bloomin’ Brands (Outback and Carrabba’s) has doubled since its August 2012 IPO. Therefore, the restaurant IPO space is becoming a hot commodity in the market, much like social media in 2011. Since Noodles still trades at a relatively cheap price to sales, I do think the market will respond favorably to its stock over the next year.

However, I prefer Chuy’s Holdings Inc (NASDAQ:CHUY)’s over Noodles. Chuy’s is growing faster, has better margins, and trades with similar metrics. With that said, I feel more comfortable with an investment in Chipotle over Noodles as well, and the growth of its new Asian inspired restaurant segment.

That said, in the end it doesn’t really matter if Noodles & Co (NASDAQ:NDLS) is worth a billion bucks, or if it should trade higher. The market is going to behave how it wants, and right now, the market likes new restaurant stocks. This means, expect gains from Noodles!

The article Is This Restaurant Worth a Billion Bucks? originally appeared on Fool.com.

Brian 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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