Noodles & Company (NASDAQ:NDLS)

CAPS Rating: 1 out of 5

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Member Avatar TMFPencils (99.79) Submitted: 9/28/2014 9:15:40 AM : Underperform Start Price: $18.59 NDLS Score: -16.88

I initially saw promise in Noodles with the company's slate of ex-Chipotle executives at the helm. However, there is no getting around the chain's dismal performance thus far. In the most recent quarter, for instance, modest sales growth of 11.5% came solely from new store openings. Actual comps for the quarter were NEGATIVE, during the same quarter where Chipotle had comps growth of 17.3% (its second-best quarter as a public company). Noodles' net income also fell in the second quarter.

Noodles continues to generate negative free cash flow, and management has stated that this number is not expected to turn positive in the foreseeable future. In other words, the company will continue to burn through cash because existing restaurants are not generating enough cash to finance aggressive expansion plans. As a result, debt has steadily increased each quarter over the past year or so. These executives sure aren't acting very Chipotle-esque after coming to Noodles from Chipotle.

Maybe Noodles will turn around, but I have my doubts. To me, when they have such poor quarterly results (and lower guidance) at the same time that Chipotle's results are skyrocketing, the validity of the concept is questionable. Plus, even after getting hammered 50%+ over the past year, shares of Noodles are still trading at a P/E over 50. No way Noodles deserves a Chipotle premium with such poor financial performance.

Noodles may right the ship at some point, but I think the shares still need to come back to earth. This isn't a company that warrants a premium of any kind at this point, but shares are still priced at a premium despite the drop over the past year. I expect the stock to underperform the market over the next year or so, and potentially beyond. Let's see how this goes. Underperform.

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Member Avatar lepera347 (83.02) Submitted: 9/2/2014 2:30:27 PM : Underperform Start Price: $18.71 NDLS Score: -18.15

Its a neat concept. but not one that is likely to go mainstream.

Unfortunately Noodles suffered from being coronated as the next Chipotle prematurely. Even after this giant decline, the stock still has a ridiculously high P/E.

Chipotle has become king simply because its food is healthy, cheap, fast and delicious. An argument could be made that Noodles' product has none of these qualities.

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Member Avatar asilverp (37.01) Submitted: 8/30/2014 12:14:15 PM : Underperform Start Price: $19.63 NDLS Score: -13.06

Not the next Chipotle

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Member Avatar TMFNinjaPanda (45.81) Submitted: 8/19/2014 10:21:35 AM : Underperform Start Price: $20.81 NDLS Score: -5.34

Ordinary (or maybe even sub-par) food quality plus overly positive expectation for market expansion make NDLS a poor investment. The management really has to try harder on improving their service or renovating their business model to beat the market.

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Member Avatar regotoguy (99.58) Submitted: 7/22/2014 5:43:55 AM : Underperform Start Price: $28.52 NDLS Score: +22.94

Bankruptcy 2015

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Member Avatar AtomicBlicky (20.12) Submitted: 5/27/2014 9:47:05 AM : Underperform Start Price: $33.72 NDLS Score: +38.21

Corporate Noodle company!! Hahahahahah

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Member Avatar jtallenmd (99.54) Submitted: 5/7/2014 1:41:29 PM : Underperform Start Price: $32.31 NDLS Score: +37.59

I really like these restaurants, but I do think their meals are overpriced for what you get. I also think the stock is overpriced at the moment. I think a more realistic value is $12.

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Member Avatar rhrehak (< 20) Submitted: 4/29/2014 2:49:21 PM : Outperform Start Price: $36.00 NDLS Score: -44.17

Great concept, good growth rate, lots of room for growth

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Member Avatar MKArch (99.73) Submitted: 1/31/2014 8:55:44 PM : Outperform Start Price: $36.45 NDLS Score: -50.05

My NDLS pick is based on a lesson I think I learned from my years as a H.G. sub, missing out on BWLD and CMG. Coming from an area where there are excellent choices for Buffalo Wings all over the place I could never understand how a wing franchise would take off nationally. Then again, the one and only time I ever tried Dominoes Pizza, I thought it tasted like cardboard and yet it seems to have done pretty well. What do I know? In my evolution as an investor though, I am coming to see the value of getting in on new franchises. In the past I focused on beaten down turn around stories or once in a while a new technology potentially on the verge of massive growth where the potential is rapid growth at some point in the near to mid term. With a franchise (done right) it looks like the opportunity is maybe a little less explosive growth but more methodical and longer term growth.

With that in mind, when I saw NDLS being discussed in CAPS; and figured due to the interest, it was probably a recommendation in one or more of the TMF newsletters, I decided to take a look. In order to get a sense of where this one could go I decided to do a crude model using CMG as a basis for scaling NDLS up over the next 10 years. In 2004 CMG had a similar number of stores as NDLS has now, so I used that as the base year and then compared how revenues and expenses grew from then until 2011 or over 8 years. I then extrapolated the same or a little more conservative growth rates to NDLS but over 10 years to add in a safety factor. I got ~$5.6/ share in earnings in 10 years. Currently CMG is trading for 56X earnings. I don't feel comfortable assuming that high of a P/E, so I ball parked NDLS could do 20X-30X earnings at that point for ~$112-$168/ share. That works out to nearly 12%-17% return per year. I also did a DCF using the same 10 year growth rate and ball parked earnings doubling over the following 10 years (11-20) before a terminal rate of 3%. That got me to a fair value of ~$43/ share or ~19% better than the current price tag.

Too me this one looks moderately undervalued based on reasonable expectations and could be a high flier if things go better than reasonable expectations. It's definitely worth following in CAPS and I decided to add a stake to my real life portfolio as well.

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Member Avatar thequast (82.08) Submitted: 1/3/2014 12:44:53 PM : Outperform Start Price: $35.97 NDLS Score: -46.95

As a value investor, it's hard for me to be bullish on the stock because I get hung up on the p/e. But when I analyze the business model, the execution, and the expansion I have no choice but to think this will be a long-term winner. Will the market give a better entry point eventually? Possibly, but as fast as this company is growing there's no guarantee.

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Member Avatar rseeleyco (< 20) Submitted: 12/29/2013 3:15:00 AM : Outperform Start Price: $35.31 NDLS Score: -45.23

just eat there! not many places better

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Member Avatar TMFJMo (70.86) Submitted: 12/26/2013 2:15:10 PM : Underperform Start Price: $33.80 NDLS Score: +42.51

http://caps.fool.com/Blogs/looking-back-and-looking/907100

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Member Avatar ltauro (< 20) Submitted: 12/10/2013 11:39:06 AM : Outperform Start Price: $38.28 NDLS Score: -51.73

Same group that started chipotle,should be able to get this off the ground.

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Member Avatar klarcbarr (35.63) Submitted: 11/13/2013 7:33:55 AM : Outperform Start Price: $43.91 NDLS Score: -62.02

Noodles has found a popular fast food segment that had not been previously wrapped in a chain concept. The low cost per serving should secure profitability for Noodles, even if management and execution is only mediocre.

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Member Avatar Gunnarsdaddy (41.12) Submitted: 11/11/2013 2:51:54 PM : Outperform Start Price: $43.17 NDLS Score: -60.41

I've eaten here, and I love Noodles. The stores that I've been in are all clean and look 'new' (they won't need to renovate for a long time), they're kid friendly (my son LOVES Noodles!), the food is great, service is great, wait times are minimal. While their financial sheet isn't fully fleshed out, they have a higher margin vs. industry, a solid expansion plan, and I think they'll grow well in the next 5 years.

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Member Avatar PhilipS (41.05) Submitted: 10/7/2013 12:28:25 PM : Outperform Start Price: $44.40 NDLS Score: -68.02

Given the similarities to already massively successful casual dining chains like Chipotle Mexican Grill and Panera Bread, Noodles & Company is a restaurant chain that is still very much in the early stages of growth. With a diverse menu and attractive price points, the company should find continued success as it looks to rapidly increase its store count in the coming years.

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Member Avatar VirtualToro (77.26) Submitted: 9/22/2013 12:17:04 PM : Outperform Start Price: $44.07 NDLS Score: -65.86

good management, targets best demo for growth

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Member Avatar Bish53 (< 20) Submitted: 9/1/2013 4:52:29 PM : Outperform Start Price: $46.16 NDLS Score: -71.76

cuz of expansion

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Member Avatar HarryCaraysGhost (99.70) Submitted: 7/21/2013 10:58:43 AM : Outperform Start Price: $43.10 NDLS Score: -65.49

Putting this on Caps as a reminder to try their noodles...

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Member Avatar CommonScents (61.01) Submitted: 7/18/2013 1:45:29 PM : Underperform Start Price: $43.79 NDLS Score: +66.73

IPO enthusiasm. Fundamentally, its a somewhat unproven restaurant model in an incredibly competitive space. I will be shocked if it's able to grow into its 400+ PE.

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