Is Chuy’s Holdings Inc (CHUY) Worth a Bite?

After a recent visit to the local Chuy’s Holdings Inc (NASDAQ:CHUY) restaurant, it became clear that the company is on a successful path. Even arriving after 1pm for lunch, the restaurant had a five-minute wait, an unheard of scenario in this area. The most disappointing part of the lunch was missing that the stock went public last summer and has already gained more than 170% before even putting together the connection.

Maybe the best part of the location is that the store is only a stone’s throw away from a Chipotle Mexican Grill, Inc. (NYSE:CMG) and a Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) is right down the street, yet the restaurant was packed for a lunch. Not to mention, the general location has dozens of other restaurants including other Mexican options suggesting Chuy’s Holdings Inc (NASDAQ:CHUY) is offering the right combination of good food at an attractive price. The main question is whether the company can expand beyond its mostly Texas locations to command a higher valuation.

Plenty of expansion

The Austin, TX based operation only has 42 full-service restaurants across nine states offering plenty of options for growth. While revenue surged nearly 25% during the first quarter, the total only reached $47 million. As an example, Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) expects to reach quarterly revenue of nearly $240 million as it has 474 locations.

Chuy’s Holdings Inc (NASDAQ:CHUY) expects to add eight to nine new restaurants for the year providing for substantial growth considering only two were opened during Q1. Worth noting is that only 27 restaurants qualified for the comparable sales calculation during Q1 so the existing store base is still relatively new as well.

Exiting shareholders

A major concern has to be the willingness of existing shareholders to unload stock this year. In two separate offerings, selling shareholders unloaded at least 8,175,000 shares with an option for another 450,000 shares.

The April offering didn’t hold the stock back as the most recent offering for 3 million shares priced at $33. That price is considerably below the current price around $40. The previous offering in January was incredibly priced at only $25.

In total, these shareholders unloaded roughly 50% of the company for over $200 million. On one hand, it has to be seen as a negative that the insider fled, but on the other hand the stock no longer faces massive insider sales as the majority of the stock is now in the public float.