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Bull Of The Day: Noodles & Company (NDLS)

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Noodles & Company (NDLS - Free Report) went public in June of 2013 and has had a rough ride. The stock is down almost 80% since its, IPO but I believe that this trend is about to reverse. The company is starting to gain momentum with a stronger than expected quarter and management raising its EPS guidance for the year by over 14%. Sell-side analysts took this queue and raised their EPS estimates for both this year and next propelling this stock into a Zacks Rank #1 (Strong Buy).

NDLS is a risky investment, let me add, but with high risk comes high reward. They have a massive amount of debt that they may not be able to sustain going forward unless the firm starts turning a consistent profit. But analysts are optimistic about strong EPS growth with full-year EPS expected to grow 700% this year and 65% in 2020.

Noodles & Co (blue) is trading at 0.75x P/S which is far below the firms high of 3.05x in 2013, it is also trading below its peer group average P/S of 0.81x.



Since its bottom in April, NDLS has grown 33%, the start to what I believe could be a very long and robust rally as this firm expands its store count. Comparable store sales had grown 3% year-over-year, showing a glimpse of sunshine in light of 19 store closures in 2018. Most of those closures came at a time when the building leases were ready to expire. Noodles & Co didn’t close any stores in 2019 and with the recent positive performance, they are planning on opening 4 to 6 new restaurants this year.

Once NDLS starts to show some solid growth in store counts, I believe this firm will see some substantial bottom-line growth that will be relayed to investors.

Menu innovations have driven noodle & Co's recent growth, with a focus on healthy and plant-based diets. The primary consumer in this category is the millennial generation, who have a focus on a healthy living, which includes healthy eating. This is something that Noodles & Co can and has capitalize on.

Take Away

NDLS has a market cap of $352 million, right on the edge of micro-cap and small-cap. This means this stock is going to see much more volatility than large firms as well as less liquidity. This is a risky investment, but I believe that this stock has hit its bottom and is only moving up from here. This is an opportunity to get into this revitalized firm on the ground floor.


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