Last week was a rough one for some of the more recent restaurant chains to go public. Shares of Shake Shack (NYSE:SHAK), Fogo de Chao (NASDAQ:FOGO), and Noodles & Co. (NASDAQ:NDLS) suffered double-digit percentage declines, a problematic sight for privately held eateries hoping to hit the market with IPOs of their own.
There's a story behind every slide, so let's take a look at what tripped up some of the newer restaurant stocks.
Fogo de Chao slumped 12% in its second week -- and its first complete week -- as a public company. The Brazilian "all-you-can-meat" churrascaria was a hot debutante a week earlier. The growing and recently profitable provider of unlimited meats served tableside was supposed to hit the market between $16-$18, but booming demand pushed its debut price to $20. It wasn't enough. The stock opened at $26.
There was no company-specific news pushing Fogo de Chao lower. It was just a natural exhale after the previous Friday's scintillating debut. With just 36 restaurants in operation there is clearly a lot of expansion space in its future. Revenue growth accelerated last year to 20% after a more modest 8% uptick in 2013. It also came through with a small profit in 2014 after posting losses in prior years, made available to the public. This results in a small float, which clocks in at 5.9 million shares, according to S&P Capital IQ data. It's an interesting story in a niche that's disrupting the way that foodies approach upscale chophouses. It bears watching, but it's obviously not going to rise every single week.
Noodles & Co. also saw its stock take a 12% hit, but there was news to explain its slide. The fall here was attributed to President and COO Keith Kinsey stepping down after a decade at the 455-unit fast casual chain that serves up pasta noodles in various international varieties. It was later revealed that Kinsey would be the new CEO at Chicago-based hot dog darling Portillo's.
Executives leave companies for greener pastures all of the time, but it stings at Noodles & Co. since it has already seen its stock lose more than two thirds of its value since peaking shortly after its IPO two summers ago.
Shake Shack also surrendered 10% of its value. It's been falling sharply in recent weeks since peaking at $96.75 in May, just months after going public as one of this year's hottest IPOs. One catalyst triggering the continuing slide was a bearish note out of Bespoke Investment Group, comparing the stock's meteoric post-IPO rise and eventual fall to last year's pop and splat of wearable camera leader GoPro.
"If the trend continues, Shake Shack has a lot further to fall from here over the next several months," the report concludes, pointing to GoPro's volatile trajectory that played out months earlier. With the lockup period expiring and the stock still ahead of its IPO price there is also the concern that insiders may dump the stock that is richly valued by most traditional measuring sticks.
So, yes, three once high-flying restaurant stocks in their freshman or sophomore seasons as public companies took a hit last week. They will continue to be big movers in either direction.