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Potbelly IPO

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September 27, 2013 – Comments (0) | RELATED TICKERS: PNRA , NDLS

Board: Value Hounds

Author: TMFPlatoish

Greetings,

I know there is some interest in these new fast casual restaurant chain IPOs over here and I fondly remember all the good work done recently on Noodles & Co. Here is another that the Hounds may want to chew on. Potbelly is about to come public with the ticker symbol PBPB. While I must admit some obscure affinity for the name I’m also feeling guilty about not exercising yet today. Potbelly would exist somewhere between Panera and Subway in the fast casual spectrum and relies on fresh ingredients while maintaining some premium pricing ability. I’ve eaten at the one near FoolHQ in Alexandria a couple of times (breakfast and lunch) and consider the food to be quite good, certainly on par with Panera and better than Subway.

It also seems to have a long runway for expansion. It has 295 locations in 18 states and DC. Of these, almost all (288) are company owned. The highest density locations are Illinois and Texas. It also has 12 units franchised in the Middle East. The company claims its average ticket last year was about $7, but I can attest to the ability to easily drop $10 for lunch.

It was at an annual sales level of $275M last year and appears to be growing at a low double-digit rate. The IPO could goose that growth rate up as they appear to be using proceeds for expansion. They are targeting opening around 35 stores in 2013 and want to add new locations at a 10% rate moving forward. There store level profit margin of 20% roughly approximates that of Panera. EBITDA margin of 11.3% is in the low end of this category’s range (about where NDLS is at).

They claim earnings per share of $0.66 last year and the offering is pricing in the $9 to $11 range according to filings. That would imply a trailing P/E ratio of 13.6 to 16.7. I haven’t dug into this enough to offer any solid opinion yet, but in the current environment I’d have to believe that this one should get a pretty substantial first day pop.

Anyone else been looking at this one?

Regards,
Stan 

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