With three straight days of decent gains, investors seem finally to have shaken off the macro jitters they experienced in the wake of last week’s Fed “surprise” announcement. Today, the S&P 500 and the narrower, price-weighted Dow Jones Industrial Average rose 0.6% and 0.8%, respectively.
Consistent with those gains, the CBOE Volatility Index (VIX), Wall Street’s “fear index,” has fallen three days in succession, with another 2% drop today, to close at 16.86. (The VIX is calculated from S&P 500 option prices and reflects investor expectations for stock market volatility over the coming 30 days.)
Follow-up: Gold’s fall unchecked
This morning, I warned investors that recent macroeconomic developments — and the response in the price of gold — suggest that the bull market in gold is dead. For now, there appears to be no respite in the fall, as the SPDR Gold Shares (NYSEMKT:GLD) lost another 2% today.
I’m not much a fan of Jim Cramer, but I have to agree with him when he said this morning on CNBC that, “I look at these moves and I find them breathtaking,” although I strongly disagree when he added, “I think gold has some value here.” I think “breathtaking” is exactly the right word to describe gold’s recent price action — just as it applied to the magnitude of the bubble on the way up.
Is this the next Chipotle?
At a time when some companies are pulling their initial public offerings [IPOs] due to the recent market volatility, investors are clearly hungry for Noodles’ shares. On Tuesday, the company announced that it would likely raise the pricing range for the stock to $15 to $17, up from $13 to $15. The company, which owns and operates 276 restaurants as of Jan. 1, with an additional 51 franchise locations, generated revenues of $312 million over the trailing 12-month period ending April 2.
It’s true that Noodles’ chairman and CEO, Kevin Reddy, was formerly the chief operating officer of Chipotle Mexican Grill, Inc. (NYSE:CMG) — he was the first hire from McDonald’s after the latter purchased a majority interest in Chipotle Mexican Grill, Inc. (NYSE:CMG) in 1998. Still, I think it’s presumptuous to herald Noodles as the next Chipotle.
For one thing, Chipotle Mexican Grill, Inc. (NYSE:CMG) (and Panera) have net cash on their balance sheet; Noodles has net debt, to the tune of $99 million. In fairness, the company plans to use $66 million of the IPO proceeds toward paying down some of the debt. Furthermore, Noodles’ gross and operating margins are only a bit more than half of Chipotle’s (and Panera’s.)
Foolish investors know that IPOs are a beauty contest and are, as a result, skeptical of the “value proposition.” At the $16 midpoint of the new pricing range, shares of Noodles & Company would be valued at 52 times trailing normalized earnings per share, or 31 times tangible book value per share. In this case, that skepticism looks richly deserved.
The article IPO Watch: Is This the Next Chipotle? originally appeared on Fool.com and is written by Alex Dumortier, CFA.
Fool contributor Alex Dumortier, CFA has no position in any stocks mentioned; you can follow him on LinkedIn. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill.
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