Noodles & Co (NDLS): It’s Showtime for This Fast Food Chain!

Nothing can stop investors from falling in love with a great growth story. Not even highly volatile markets and a looming financial environment. Shares of fast casual restaurant Noodles & Co (NASDAQ:NDLS) more than doubled in their first market session following their public offering, valuing the company at as much as $1.07 billion. Demand for shares was so strong that Noodles ended up selling shares at $18 a piece, above the top end of its increased price range of $15 to $17 per share. All in all, the company raised $97.2 million by selling 5.4 million class A shares. Now, when shares are fully priced for robust growth, it’s the company’s own duty (and obligation) to prove that it can truly become the next Chipotle Mexican Grill, Inc. (NYSE:CMG) or the next Panera Bread Co (NASDAQ:PNRA) of the restaurant fast food sector.

It’s all in the growth

To become the next Chipotle or Panera, Noodles & Co (NASDAQ:NDLS) business must grow… and fast. Chipotle, for example, has doubled its sales in the last five years, while earnings have risen 270%. The number of restaurants of the Mexican fast-food chain is up 30% in the last three years. That’s a very remarkable growth story. Panera isn’t far behind, with an annual earnings growth of roughly 16% and 123 new stores in 2012 alone. Panera is committed to its growth. The company plans to add another 195 new franchises that will open in the next four to five years.

And Noodles & Co (NASDAQ:NDLS) is on the right path to deliver growth. Even before seeking public money for additional growth, Noodles has already added more than 120 restaurants during the downturn years, from 2008-2012, and reached $300 million in sales in its most recent year. That’s a pretty good head start.

Economic moat

Many opponents to investing in the high-growth fast food sector say that it’s a saturated market and that there isn’t any real economic moat in the restaurant business. After all, they say, anyone with a taco truck can compete with Chipotle. I believe this isn’t the case. The fast food sector, as a whole, is very competitive. But once you are able to establish your brand, distinguish it from the rest and make people return to you – then is when your business becomes highly lucrative.