Chipotle Mexican Grill, Inc. (NYSE:CMG)’s price to earnings ratio is around 40, which prices in a continuation of the company’s impressive revenue and earnings growth. It is also high for the industry, but as long as the company can grow profitably, aggressive growth investors should like the shares. And its an indication of what could be to come from newly public Noodles & Co (NASDAQ:NDLS).
The Hot IPO
Noodles & Co (NASDAQ:NDLS)’s shares doubled on their first day of trading. That pent-up demand has a lot to do with it being only the second company to come public in the fast casual space. The concept is an odd amalgam of noodle based fare from around the world, including pastas and soups from spaghetti to pad Thai.
The company has almost 350 restaurants in 26 states. Its top-line has grown from $170 million in 2008 to $300 million last year. However, with the money from the IPO, it should be able to pick up the pace of its expansion. And, with so few stores and operations in only about half the country, there’s plenty of opportunity for organic growth.
Look Out Below
That said, both Noodles & Co (NASDAQ:NDLS) and Chipotle Mexican Grill, Inc. (NYSE:CMG) are hot concepts in an industry with fickle customers. Moreover, restaurants are prone to overbuilding and the use of too much leverage. Aggressive investors looking to get in on a hot trend should like both stocks, though Noodles & Co (NASDAQ:NDLS) might be more interesting right now because it is so new to the market.
That said, Chipotle’s recent and swift fall, despite the subsequent recovery, should be a warning sign for investors. If things head south, at the business level or in investors’ perceptions of the stocks, then either of these fast casual chains could sell off quickly. This pair will need close monitoring.
The article More Buying Opportunities in an Expanding Restaurant Niche originally appeared on Fool.com and is written by Reuben Brewer.
Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill and Darden Restaurants (NYSE:DRI). Reuben 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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