Dear Valued Visitor,

We have noticed that you are using an ad blocker software.

Although advertisements on the web pages may degrade your experience, our business certainly depends on them and we can only keep providing you high-quality research based articles as long as we can display ads on our pages.

To view this article, you can disable your ad blocker and refresh this page or simply login.

We only allow registered users to use ad blockers. You can sign up for free by clicking here or you can login if you are already a member.

Noodles & Co (NDLS) vs. Chipotle Mexican Grill, Inc. (CMG) Burritos: Should Investors Take a Bite?

Noodles & Co (NASDAQ:NDLS)In 2009, Chipotle Mexican Grill, Inc. (NYSE:CMG) hovered around a market value of $2.5 billion. Many thought that a company that makes burritos, no matter how fresh or sustainable, lacked a moat and any more sizable growth. Today, Chipotle Mexican Grill, Inc. (NYSE:CMG) is worth nearly $12 billion.

A little more than a week ago, Noodles & Co (NASDAQ:NDLS) held its initial public offering at $18 per share and quickly spiraled upward to more than double that price. The noodle maker is now worth more than $1 billion.

Are investors confusing their carbohydrate-laden companies? Or are noodles the next portfolio necessity?

Filling up on Chipotle
Chipotle Mexican Grill, Inc. (NYSE:CMG), like Noodles & Co (NASDAQ:NDLS), started in the Denver area in the 1990s. After proving a successful business model, McDonald’s Corporation (NYSE:MCD) purchased a majority stake in the company in 2001 and helped the company grow from 100 locations to 500 before divesting its shares in 2006.

Before Chipotle went public, its average restaurant sales increased substantially from $1.27 million in 2003 to $1.5 million in 2006, which provided a clear picture that increasing revenue was due not just to more locations, but also to a growing business that customers enjoyed. Its financial position grew stronger each year, with increasing earnings before interest, taxes, depreciation, and amortization from $7.2 million in 2003 to $59 million in 2005.

Chipotle also followed a tenet responsible for many successes in business, summed up in its prospectus like this: “We do just a few things but try to do them really well.” When McDonald’s Corporation (NYSE:MCD) had control of Chipotle, it pushed for the chain to offer coffee and cookies. According to the Rocky Mountain News, CEO Steve Ells said: “We wouldn’t do it better than anyone else. And I don’t want anything to be part of Chipotle that wouldn’t be the very best.” That attitude mirrors what Five Guys Burgers and Fries founder Jerry Murrell says on why the chain doesn’t offer milkshakes: It’s focused on burgers, and it can’t make a better shake than what competitors offer.

Noodling around
Does Noodles & Co (NASDAQ:NDLS) share any characteristics of a young Chipotle?

The breakneck revenue growth of Chipotle’s adolescence seems to outpace what Noodles & Co (NASDAQ:NDLS) offers. Whereas same-store sales increased 18% for the roughly two year-period before Chipotle’s IPO, Noodles’ systemwide sales increased about 14.5%. But Noodles’ EBITDA appears strong, growing from $17.7 million in 2010 to $30.1 million in 2012.

As far as focus, Noodles & Co (NASDAQ:NDLS) shuns the idea that less is more. In its prospectus, it touts its “global flavors” and variety that allows it “to compete against multiple segments throughout the restaurant industry and provide[s] [it] a larger addressable market for lunch and dinner than competitors who focus on a single cuisine.” The company writes that this approach “eliminates the ‘veto vote’ and encourages people with different tastes to enjoy a meal together.”

Noodle or burrito bowl?
Financially, Noodles appears to bring the strength of Chipotle, especially with growth available in huge, relatively untouched markets in California and New York. Philosophically, investors will need to stomach a more diverse meal offering. Noodles & Co (NASDAQ:NDLS) may have found the one food that can be executed well for diverse cuisines, or it may become a business case of why only intense focus can lead to market domination.

The article Noodles vs. Burritos: Should Investors Take a Bite? originally appeared on and is written by Dan Newman.

Fool contributor Dan Newman has no position in any stocks mentioned. The Motley Fool recommends and owns shares of Chipotle Mexican Grill (NYSE:CMG) and McDonald’s.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

DOWNLOAD FREE REPORT: Warren Buffett's Best Stock Picks

Let Warren Buffett, George Soros, Steve Cohen, and Daniel Loeb WORK FOR YOU.

If you want to beat the low cost index funds by 19 percentage points per year, look no further than our monthly newsletter.In this free report you can find an in-depth analysis of the performance of Warren Buffett's entire historical stock picks. We uncovered Warren Buffett's Best Stock Picks and a way to for Buffett to improve his returns by more than 4 percentage points per year.

Bonus Biotech Stock Pick: You can also find a detailed bonus biotech stock pick that we expect to return more than 50% within 12 months.
Subscribe me to Insider Monkey's Free Daily Newsletter
This is a FREE report from Insider Monkey. Credit Card is NOT required.