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Noodles & Co (NDLS), RetailMeNot Inc (SALE), ExOne Co (XONE): One of These IPOs May Be Setting Shareholders Up for a Huge Letdown

2012 was one of the most anticipated years for IPOs, with Facebook Inc (NASDAQ:FB) led the way. 2013 has already had several IPOs that have the potential to provide huge shareholder returns. The following three companies are likely to grow in value over the next several years, though one of these companies may be setting shareholders up for a huge letdown.

Noodles & Company

Noodles & Co (NASDAQ:NDLS)Labeled by many as undervalued based on how it performed its first week on the market, Noodles & Co (NASDAQ:NDLS) looks like it could be setting up the perfect trap for the wishful growth investor – but it isn’t. The noodle and pasta restaurant chain, with over 340 locations in over half the 50 states, more than doubled its $18/share IPO price to close at $36.75/share on opening day at the end of June. It has gone up another 15% since.

Some analysts are critical of the chain’s growth story for being overpriced in a crowded restaurant sector of cheaper alternatives. They are waiting to see what its second quarter earnings show on August 8th. Last year, revenue increased 17.3% to $300 million but produced just $5 million in net income. While net income increased 35%, margins are suspect – even for the restaurant sector. Revenue estimates are around $90 million for the next 2 quarters, with year expectations to surpass $350 million. This would be a 16% increase year-over-year.

To better understand why Noodles & Co (NASDAQ:NDLS), the first restaurant IPO of 2013, is a buy, one should look at last year’s four restaurant IPOs.

Restaurant IPO Date Share Price Change Since IPO
Ignite Restaurant Group, Inc. May 11, 2012 +10.5%
Chuy’s Holding, Inc. July 24, 2012 +100.3%
Del Frisco’s Restaurant Group Inc July 27, 2012 +63.5%
Bloomin’ Brands Inc August 8, 2012 +86.3%

The table above shows that in recent history, even with the dragging economy, restaurant stocks are in play. With the average return of the above four companies being over 65%, Noodles & Co (NASDAQ:NDLS) has statistics on itsside. Considering that the restaurants all fit into a different niche and price point, noodles and pasta look to fit right in.


Wrongly compared to other online deal sites, RetailMeNot Inc (NASDAQ:SALE) shows how the coupon business model should operate. Labeled as the no. 1 online coupon marketplace in the world with over 450 million visits per year and 500,000+ coupons for over 60,000 stores, RetailMeNot Inc (NASDAQ:SALE) has produced an annual profit since 2010. Net income has multiplied by over 10 times, going from just $2.3 million in 201 to $26 million in 2012.

Where others have failed by focusing on local deals from companies that the typical consumer has never heard of, RetailMeNot Inc (NASDAQ:SALE) focuses on national retailers. It makes money through commissions from the retailers and uses its website to sell to advertisers. By leveraging data from Facebook Inc (NASDAQ:FB) “likes,” it also targets customers with relevant coupons. It is a win-win-win situation for the retailers, customers, and for RetailMeNot Inc (NASDAQ:SALE)’s bottom line.

The company’s revenues in 2012 were $144.7 million and should be easily eclipsed in 2013. First quarter revenues were $40.6 million with net income at $7 million. Some say that the easy money is gone as the stock has done little since soaring past $27/share on opening day. However, digital coupons are expected to rise to 100 million by 2014 (an 8% increase from 2012) and RetailMeNot Inc (NASDAQ:SALE) will definitely be in the game.

ExOne Co

The fact that ExOne Co (NASDAQ:XONE), the small 3D printing company located outside of Pittsburgh, PA, has soared over 140% since its IPO in February isn’t justification enough to predict a share price decline. 3D printing is in style right now, although the concept has been around for over 25 years. The entire sector has been trending higher for the past few years.

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