Noodles and Company Stock Forecast

Noodles and Company Stock Forecast: Noodles and Company [NASDAQ: NDLS] is a unique franchise.

It was founded by Aaron Kennedy, formerly an executive at Pepsi. He had visited a traditional Asian noodle shop in New York City and liked the idea so much that he opened his own version in Denver.

The year was 1995; it just grew from there. By 1996, the chain was receiving some harsh reviews, but Kennedy stayed at the helm and refined the model until it worked.

For a while, Noodles and Company was doing well. It made $300 million in 2013, up from $300,000 in 1995. That was the year the company launched its IPO. As of the end of 2018, Noodles and Company made $457.8 million. It had 394 company-owned locations and 65 franchises. It has operations in 29 states as well as Washington DC.

Financial sites are over the map on its outlook. In 2018, MoneyWise listed the franchise in a list of the most rapidly disappearing fast food chains while The Motley Fool was more bullish on the stock. At Financhill, we think you should make your own decisions about where to invest. Before you decide whether to invest in Noodles and Company, do your research. Here is what you need to know to get started.

What Does Noodles and Company Do?

Noodles and Company [NASDAQ: NDLS] makes macaroni and cheese, spaghetti, buttered noodles, penne, pad Thai, pan noodles, and zoodles – basically any noodle dish you can imagine along with a few salads and soups.

As of the end of FY18, the average diner at Noodles and Company spent just $8.99 per person and it served over 20 dishes representing several flavors and cuisines. On the surface, the idea may seem smart. After all, noodles are cheap, right? And everyone likes some type of noodles, yes?

The reality about its business model is more complicated. Panos Mourdoukoutas, a contributor at Forbes, complains that such a diverse menu so many employees that the cost becomes prohibitive.

In contrast, Insider Monkey is reporting that hedge funds are loving this stock. This is important to note because hedge funds have a ton of resources available and access to research. When one of them makes a stock pick, it often produces above average returns. There are no guarantees that it will – anymore than Warren Buffett always picks a winner – but there is a strong correlation.

Risks of Buying Noodles and Company Stock?

That said, Noodles and Company [NASDAQ: NDLS] does have some serious issues.

In 2016, the company experienced a malware attack. It impacted customers who paid with a debit or credit card in four months in early 2016. The data breach cost Noodles and Company roughly $11 million to make it right. Losses like that – both financially and in goodwill – can echo for years, impacting a company’s success.

In 2017, it closed 55 restaurants and another 19 in 2018. These closures were triggered by underperformance or lease expirations – and per the company’s 2018 annual report, no more are scheduled – but these facts point to a bigger issue. Noodles and Company is still “figuring it out,” and that point is worrisome for a 25-year-old business.

It would be bad enough if all the locations were company-owned. Franchising adds an extra layer of complexity. It can be a real problem when you are still deciding how to standardize your employee training and processes.

In addition, Noodles and Company has very labor-intensive production. Its employees use many of the same techniques you would find in serious restaurants, like sautéing. This fact effectively limits just how efficient the chains can get. Employees need to spend a certain amount of time on each dish.

Plus, Noodles and Company is also experiencing some change in management. Chas Hermann, the Chief Brand Officer, is leaving the company effective January 31, 2020. He was integral in helping Noodles and Company turnaround. The company launched zoodles and refined its marketing under his guidance. Without him, who knows?

Finally, consider the product.

According to the University of Chicago, some three million people in the United States have celiac disease – that is roughly the same as the number of people who have Diabetes Type 1 and equal to around 1% of the population.

People with celiac disease cannot eat at Noodles and Company. While the chain does sell gluten-free food items, it does not prepare them in a way that is safe for people with celiac disease.

Furthermore, there are 18 million people in the US with non-celiac gluten-sensitivity – 6% of the population – that may also not be able to eat at Noodles and Company.

In other words, Noodles and Company cannot serve 7% of the population, plus their families (because you wouldn’t eat there if one of your people couldn’t also partake, right?). That’s a sizable chunk of the population when you are trying to be a noodle company that serves everyone.

Is Noodles and Company Stock a Buy?

Noodles and Company [NASDAQ: NDLS] believes that value and variety are its biggest strengths, so trimming the menu or raising prices isn’t something that is going to happen lightly. The company is focusing on improving efficiencies across the board to reduce operations costs.

In 2016, Noodles and Company reduced the size of its menu and in 2017, invested in products to improve efficiency in its restaurants. The company added produce choppers and installed self-bussing stations. The idea was to reduce the number of employees needed in each location.

To further improve the efficiency of its locations, Noodles and Company also has an eye on management and training. It has been using new assessment tools to make better hiring decisions and focusing on leveraging best practices throughout its locations.

It has also been working on improving the convenience for its customers. The company recently introduced a loyalty program – NoodlesREWARDS – and it has been rolling out a third-party delivery program. This may help draw in some customers.

Noodles and Company Stock Forecast Summary

Noodles and Company is going to have growing pains for a while. The company is still working out the kinks. Whether or not it has the chops to put it all together – and whether it has enough of a market to be profitable – has yet to be seen. Would-be investors in the stock should do their research and keep an eye on company news so you can make informed decisions about your investment in the company.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.