Noodles and Co - fairly valued for all its future growth
I read a good Motley Fool analysis of NDLS just now. When valuing this kind of stock - a new restaurant chain that has proven its acceptance among consumers but has not come anywhere near to saturating its target market with locations - I always think of Peter Lynch, who (speaking of Taco Bell in the 80's) said that such a stock is a "screaming buy" when its P/E is 20.
If NDLS' P/E is 450 now, then it is 22.5 times as pricey as it would be if it were a Peter Lynch "screaming buy." In other words, earnings would have to double 22 times before Lynch would consider it to be fairly priced at this level for its future growth. If we ignore comps growth and focus only on new restaurants, that means that it would have to have about 7100 restaurants in order to be a 'screaming buy' at this price. 7100 Noodles and Co. restaurants, however, might pretty well saturate the American market! They might have trouble opening new restaurants if there were already one on most city street corners - they'd be competing with themselves. I'm not a buyer of NDLS here. If I shorted stock, which I don't, I would consider shorting it at these prices. (Trouble with going short is you need a catalyst - something to make Wall St. wake up and smell the coffee - and I have no idea what that would be in the case of NDLS.) Still long CMG, by the way; still happy with earnings growth; still happy with my basis. Hope you all got in at 241 when I told you to!