The market's having a fiesta with Chuy's Holdings
Shares of the fast-growing chain of Tex-Mex casual-dining restaurants popped 15% higher last week after it posted better-than-expected quarterly results -- sending Chuy's to fresh highs.
Restaurant stocks have been surprisingly popular IPOs this summer, but they haven't necessarily been barn burners. Bloomin' Brands
Chuy's is the rock star, for now. The stock has soared 58% since selling 6.7 million shares at $13 in late July.
Last week's second-quarter report was solid. Revenue soared 32% to $43.5 million, fueled primarily by the 37-unit chain's brisk expansion. Pro forma net income rose 40% to $0.17 a share. Analysts were only expecting a profit of $0.16 a share on $43.1 million.
There isn't exactly a consensus of opinion around Fooldom when it comes to Chuy's. I was excited about its prospects after visiting its first Florida location last month, learning the things that set it apart from the countless other Tex-Mex and Mexican chains out there. Fellow Fool John Maxfield wasn't impressed at all. He worries about the moat, debt, and brief corporate history.
The one thing that we can probably agree on is that Chuy's isn't exactly cheap. The 58% pop leaves us with a company valued at 37 to 38 times its projected profitability for this year. Even KeyBanc -- one of the underwriters that took Chuy's public this summer -- initiated coverage two weeks ago with a neutral "hold" rating.
Chuy's is no Chipotle Mexican Grill
However, there's also a big difference between the 1,316 Chipotle locations and the mere 37 Chuy's restaurants. Chuy's is considerably earlier in its life cycle, though obviously it has a long way to go to show that it has the kind of legs and cult status that Chipotle has achieved with its burrito-rolling prowess.
I'm still going to keep an eye on Chuy's. I would love to see the valuation become more attractive, but it's hard to bet against a company that delivers strong quarterly results in its first outing as a public company.
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The Motley Fool owns shares of Chipotle Mexican Grill. Motley Fool newsletter services have recommended buying shares of Chipotle Mexican Grill. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
Longtime Fool contributor Rick Munarriz calls them as he sees them. He does not own shares in any of the stocks in this story. Rick is also part of the Rule Breakers newsletter research team, seeking out tomorrow's ultimate growth stocks a day early.