Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Shares of Noodles & Company (NASDAQ:NDLS) were looking overcooked today, falling as much as 11%, after investors didn't like the taste of its guidance last night.
So what: Reporting earnings for the first time as a publicly traded company, Noodles topped earnings estimates, posting $0.13 a share against the consensus $0.12, while revenues improved 18.2% to $89.2 million, beating expectations of $88.1 million. Same-store sales, meanwhile, were up 4.4% in the quarter, indicating moderate organic growth. What sent shares downward seemed to be underwhelming full-year guidance as management projected 2013 EPS of $0.39 to $0.41. While that's slightly ahead of the analyst estimate at $0.39, the market was clearly looking for a bump up in the wake of the company's shares more than doubling since their June IPO.
Now what: This was a perfectly reasonable earnings report. The problem, however, is with the valuation, not the company. From an IPO price of just $18, Noodles shares skyrocketed, seemingly on ambitious expansion plans and hopes it would be the next Chipotle. With its 2013 P/E sitting around 100, and only a moderate sales growth rate of 16% expected next year, I'd say shares are destined for a pullback. I'd wait for a better entry point before grabbing a piece of Noodles.
Fool contributor Jeremy Bowman owns shares of Chipotle Mexican Grill. 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.