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Noodles & Co. Is Up 25% in 2016

By Rick Munarriz - Jan 25, 2016 at 9:00AM

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A former fast-casual darling bounces back in a major way in two of the first three weeks of 2016.

Image source: Noodles & Co.   

Noodles & Co. (NDLS -0.99%) is finding a way to make its shareholders happy in 2016 -- at least every other week. Shares of the fast-growing restaurant chain specializing in pasta dishes soared 12% last week.

The move comes after soaring 14% during the first trading week of the year. Tack on the 2% slide in the week in between, and shares of Noodles & Co. are up 25% so far in 2016. That's not too shabby when so many stocks are still in the red this year.

The 488-unit chain got a boost earlier in the year after announcing the launch of an interactive website, reintroducing its "Kids Eat Free" promotion, and adding a new gluten-free item to the menu. However, most of Noodles & Co.'s gain since then can probably be traced back to a favorable presentation at the annual ICR XChange conference.   

Many restaurants got a pop after presenting at the conference two weeks ago. Noodles & Co. was able to sell investors on some of its recent moves. 

It explained the "Made.Different" brand repositioning that it rolled out during the latter half of last year, emphasizing its fresh cooking and healthy dining choices. Noodles & Co.'s surprisingly varied menu and healthy kid meal choices have made it a popular choice for families. More than 70% of its customers have children in their households. 

Like many fast-casual chains, mobile ordering and catering are growing faster than traditional store sales. Mobile sales now account for 5% of the revenue mix. This isn't enough to move the needle -- yet -- but it's an important place to be if it wants to keep up with the competition.

Noodles & Co. went public at $18 in 2013, soaring as it was hyped as the next darling in fast casual. The success of Chipotle Mexican Grill (CMG 1.06%) at the time had folks scrambling to invest in other fast-casual concepts, but Noodles & Co. was no Chipotle. Comps proved mortal in 2014 -- something that didn't happen at Chipotle until its most recent quarter. 

Things only got worse in 2015. The stock plunged 63% on the year. It fell short of Wall Street's earnings forecast in each of the past four quarters, something that rarely happens to Chipotle. 

Chipotle closed 16 stores during the fourth quarter. It's also scaling back its expansion. It will open 40 to 45 new eateries this year, but it won't be entering new markets through 2016. Margins have been contracting, and it has posted losses in two of the past three quarters. Yes, that's also something that has never happened to Chipotle. 

However, in a year in which Chipotle has fallen out of favor -- down 6% so far in 2016 -- it's notable that Noodles & Co. is leading the way in fast casual. It will have to do more than tell a good story to keep moving higher in 2016.

Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of and recommends 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.

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Stocks Mentioned

Noodles & Company Stock Quote
Noodles & Company
NDLS
$5.01 (-0.99%) $0.05
Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
CMG
$1,639.09 (1.06%) $17.28

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