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Why cauliflower pasta could derail Wall Street's bearish view on Noodles & Co.

Brian Sozzi

This week cauliflower-based pasta will join zucchini noodles on the menu at former high-flying restaurant chain Noodles & Co. (NDLS)

Perhaps the mostly bearish Wall Street analysts covering Noodles & Co. should give both a try while re-reading the financials. Noodles & Co. is fresh off posting its fifth straight quarter of same-store sales growth in the second quarter, delivering an impressive 4.8% increase. Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 20.5%.

The performance is no minor achievement for Noodles & Co. for a host of reasons.

First, the fast-food industry continues to be dominated by burger chains Shake Shack (SHAK) and McDonald’s (MCD) and fried chicken sandwich sellers such as Popeyes and Wendy’s. These popular chains are churning out more portable food options — some healthier plant-based varieties — at attractive price points. Meanwhile, they are getting these products to consumers increasingly through digital ordering platforms.

Secondarily, there is still a stigma among carb-cutting consumers about pasta. The plant-based burgers at Burger King are pretty fatty and salty, too, but consumers remain hesitant of eating pasta for fear of weight gain.

That stigma has weighed on Noodles & Co., CEO David Boennighausen said on Yahoo Finance’s The First Trade.

‘Disconnect on Wall Street’

And last but not least, Noodles & Co. has been through considerable operational changes since it debuted as a hot initial public offering back in June 2013. Underperforming restaurants have been closed, new store growth slowed down and new executives have sought to re-energize the brand.

“There is a disconnect on Wall Street,” said Boennighausen, who has been with the company since 2004 and CEO since June 2017, when asked about the company’s recent performance and its stock. At $5.82 a share, Noodles & Co.’s stock is light years away from its record highs near $40 around its market debut.

But with a more profitable mix of stores, a more diversified menu with healthier options and a planned new store expansion starting in 2021 (5% unit growth in 2021 and 7% thereafter, Boennighausen says), Noodles & Co. appears worthy of a second look by Wall Street.

At the very least, the new menu is worth a try.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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