Noodles & Co (NASDAQ:NDLS) more than doubled after going public on Friday, and the shares rose another 5% on Monday.
As a fast-growing casual dining concept, investors are naturally going to compare the new carb-laden kid on the block to Chipotle Mexican Grill, Inc. (NYSE:CMG), but the comparisons may be premature.
Yes, both companies specialize in the fast-casual niche that’s growing at the expense of traditional casual dining. Customers crave quality eats that are prepared quickly. Prepaying at the counter comes in handy, since there isn’t a need to flag down a server for a check at the end of a meal.
Chipotle Mexican Grill, Inc. (NYSE:CMG)’s claim to cult status popularity is that its comps remained positive even during the darkest recessionary stretches. Noodles & Co (NASDAQ:NDLS) is there, too, having posted positive same-store sales in 28 of the past 29 quarters.
However, let’s talk about valuations.
Chipotle had 489 restaurants by the end of 2005. Revenue had climbed 33% to $627.7 million that year, and comps had posted eight consecutive years of double-digit comps.
Noodles & Co (NASDAQ:NDLS) is doing well, but not that well.
Revenue climbed 17% to $300.4 million last year, and Noodles closed out the year with 276 locations. Systemwide comps have grown 3.7%, 4.8%, and 5.4% in its three most recent fiscal years.
In short, Noodles is half the size — and growing at half the rate — of Chipotle Mexican Grill, Inc. (NYSE:CMG) at the time of its IPO. The average Chipotle restaurant was making more than the average Noodles unit is making now.
Chipotle’s IPO pop boosted its market cap to $1.4 billion. Noodles — with the inevitable over-allotment of shares pushing its total share count to 29.4 million — is now worth more than $1.1 billion.
To be fair, Chipotle went public at a time when casual dining was still unproven. Even if it takes another three to four years for Noodles to get to where Chipotle was at the time of its IPO, it will probably command a market cap greater than $1.4 billion at the time if the fundamentals continue to hold up.