Noodles & Company Vs. Chipotle Mexican Grill: Which Is the Best Buy Now?

Here’s some additional insight into the forward-looking numbers.

May 16, 2014 at 5:41PM

Ndls
Source:  Noodles & Company

Let's give Noodles & Company (NASDAQ:NDLS) a free pass on the first quarter. Sure, its same-store sales were negative as it blamed the winter weather even though Chipotle Mexican Grill (NYSE:CMG) looked like it could sell snow to Eskimos with a whopping 13.4% gain for the identical quarter. Fine, ignore that. However, going forward, it's still hard to get excited about Noodles & Company just yet.

Noodles & Company's results
Don't get me wrong. Noodles & Company's first-quarter results weren't terrible and the company itself is doing OK. It doesn't need to be the next Chipotle Mexican Grill to succeed. However, for shareholders to share in that success over the long term, they need to pay a reasonable price.

Revenue did rise 10%. Systemwide same-store sales slipped 1.6%, which is far from the end of the world. Adjusted net income stayed flat at $1.4 million or $0.05 per share. Hey, that's $1.4 million more than it had at the beginning of the quarter.

Ndls

Source: Noodles & Company

The rest of the year
Noodles & Company blamed the "unprecedented weather throughout the country," especially with many of its locations directly in the path of the storms. What appeared to be lacking, however, was the follow-through when the storms cleared up. Chipotle Mexican Grill reported that riots almost occurred when its stores reopened, which immediately boosted sales and made up for the shortfall. This speaks loudly of its brand and outlook going forward.

On its April 29 conference call, Noodles & Company was still in the process of seeing its sales "gradually" recover. For Chipotle Mexican Grill we're talking one day, then it was bigger than ever. Noodles & Company is still waiting.

Chipotle Mexican Grill is guiding for high single-digit same-store sales growth. If you've been following Chipotle Mexican Grill even casually, you've probably noticed that the company often likes to sandbag its guidance. Don't be surprised if Chipotle Mexican Grill reports much bigger numbers for 2014.

Meanwhile, Noodles & Company is only looking for between 2.5% and 3% same-store sales growth for 2014. Again, don't get me wrong. This is certainly not bad, and if it achieves this it will be the envy of many restaurant chains. However, to justify its valuation it's going to need more than that. Sure, its expected restaurant-unit-growth ranging between 16% and 24% is extremely nice, along with its 25% earnings-per-share growth, but this is still doesn't support the current stock price.

Show me da valuation
Based on the current share price, Noodles & Company trades with a P/E of around 63 based on guidance for adjusted earnings growth of 25% over 2013 or $0.50 per share for the year ending December 2014. Chipotle Mexican Grill trades with a P/E of 40 based on the current share price and analysts' estimate of $12.51 in EPS for the year ending December 2014. Analysts expect around another 25% earnings growth for Noodles & Company and around 27% growth for Chipotle Mexican Grill over the following year.

It's hard to make a fundamental case even if you torture the numbers to say that Noodles & Company is the better buy, considering its much larger P/E, slower momentum, and similar growth expectations. However, there could be something about the brand itself, I suppose, that could make it more popular in the future or something about Chipotle Mexican Grill that's more faddish and could cool down its demand.

While anything is theoretically possible, the better risk and reward for now seems to rest with Chipotle Mexican Grill, but that could certainly change. If only Noodles & Company were a lot cheaper, I would be all over it like white on GMO-free rice. However, that's easy to say about any profitable and growing company, even Noodles & Company, and especially Chipotle Mexican Grill.

This should help move the line at fast-casual restaurants
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Nickey Friedman has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill. The Motley Fool owns shares of Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers