Will This Be the Biggest Restaurant IPO of the Year?

Wall Street has a healthy appetite for restaurant offerings these days. Don't believe me? The proof is in the pasta. I'm talking about Noodles & Company (NASDAQ: NDLS  ) , of course. The fast-casual chain priced shares at $18 a pop in its initial public offering on June 28, only to see the stock double to $36.75 on its first day as a publicly traded company . Today, the stock trades near $44. However, if you missed out on the Noodles rally than you may want to grab a bite of this next big Restaurant IPO.

Chicago-based sandwich chain, Potbelly, is planning to hit the public market with an offering aimed at raising $75 million . Shares will be listed on the Nasdaq under the ticker symbol PBPB, and priced between $9 and $11, according to a recent S-1 filing . This price range is fair if you consider Potbelly's growth potential.

Source: Potbelly S-1 filing

The company has 295 Potbelly locations today in 18 states including the District of Columbia. Of these, only seven are franchised. There are also 12 franchised-owned shops open in the Middle East . Alshaya, which is Potbelly's first international franchise partner, has exclusive franchising rights in the Middle East and could open new shops in areas including Egypt, Jordan, Lebanon, and Saudi Arabia.

Franchise-owned locations such as these help Potbelly grow more quickly than it could with company-owned shops. Looking ahead, Potbelly's also has plenty of room to expand within the United States, as you can see from the map below .

Source: Potbelly S-1 filing

All of this bodes well for the company going forward. However, don't expect this to be the biggest restaurant IPO of the year. I suspect Noodles & Company will hold on to that title. Just three months after its stock market debut, Noodles' now commands a market cap of $1.2 billion . Potbelly's, on the other hand, will have 28,006,541 shares outstanding after its upcoming market offering. That would translate into a market cap of about $280 million if the stock were to IPO at its mid range of $10 a share.

Get it while it's hot
While Potbelly might not top Noodles & Company in its stock market debut, it does have one clear advantage: smart backing. Starbucks (NASDAQ: SBUX  ) CEO Howard Schultz was an early believer in the sandwich shop. In addition to serving on Potbelly's board of directors , Schultz's venture capital company, Maveron, is also Potbelly's largest shareholder with a 28% stake in the restaurant .

If anyone understands how to grow a business, it is Schultz. He transformed Starbucks into an international coffee brand, which is now the face of a multibillion-dollar industry. Moreover, as one of the most celebrated CEOs today, Schultz's connection to Potbelly adds a layer of credibility ahead of the company's offering.

Ultimately, I don't expect Potbelly's to replicate Noodles' Wall Street success right out of the gate. However, the stock should reward investors down the road as the company expands into new areas and sells more franchises.

While Potbelly's might not be the hottest restaurant IPO of 2013, The Motley Fool's chief investment officer shares his No. 1 stock pick for the year in this special free report: "The Motley Fool's Top Stock for 2013." Just click here to access the report and find out the name of this under-the-radar company.


 

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  • Report this Comment On September 28, 2013, at 9:17 AM, Margateindiana wrote:

    What makes this IPO "hot".? They have not earned anything, they compete with Subway and many others, the sales growth is not overwhelming, and the idea that growth in adjusted cash flow justifies the stock price is not convincing. This is not Amazon. The thing that really sticks out here is that almost the entire proceeds of the IPO go to pay dividends to existing shareholders and management, which certainly counters the idea that the business is "hot".

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