Recently IPOed Restaurant Chains Giving Investors Indigestion

Operations At A Potbelly Corp. Restaurant Following IPO
Andrew Harrer/Bloomberg/Getty Images

Last week was brutal for restaurant operators that recently went public. Sandwich baker Potbelly (PBPB) saw its shares plunge 23 percent on the week after warning that it will fall short of financial expectations. It's now trading below last year's IPO price of $14.

%VIRTUAL-article-sponsoredlinks%Tex-Mex casual dining specialist Chuy's (CHUY) saw its stock take a 17 percent weekly hit on no material news. It went public two summers ago at $13, and it's trading well above that level. Chuy's also hit a 52-week low this week.

Even Yelp (YELP) -- the fast-growing firm that seems to be a play on foodies in general with folks relying on it for local restaurant reviews -- proved vulnerable. The stock may still be a big winner for early investors (it's quadrupled since going public at $15 two years ago), but Yelp shares stumbled 10 percent last week, in part because an analyst slashed its price target on the stock, suggesting that sequential growth in the number of reviews posted is starting to decelerate.

Gone Appetit

Potbelly was a market darling when it went public last summer. The stock more than doubled to close above $30 on its first day of trading. The chain -- which started selling sandwiches inside an antiques shop -- has shed nearly two thirds of its value since that first-day pop.

Potbelly's most recent slide last week came after it warned that it would earn half as much as Wall Street was expecting for the recently concluded second quarter, held back by negative comparable-restaurant sales growth and contracting margins.

Other restaurant stocks that have gone stale:

  • Noodles & Co. (NDLS) initially soared after going public last year. The fast casual pasta specialist hit the market at $18 last summer and within days was trading north of $50. It has shed more than 40 percent of its peak value, missing Wall Street's profit targets in back-to-back quarters.

  • Papa Murphy's (FRSH) is the country's largest take-and-bake chain, selling freshly prepared pizzas that consumers bake at home. It wanted to go public between $11 and $13 two months ago. It settled for $11, and the stock has slipped into the single digits.

  • Zoe's Kitchen (ZOES) is a fast-growing chain offering Mediterranean delicacies. It went public at $18 a month before Papa Murphy's, and it soared out of the gate. Zoe's posted blowout quarterly results last month, fueled by a 47 percent surge in sales. Comparable-restaurant sales rose a chunky 5.7 percent. The market would have typically rewarded this kind of performance, but Zoe's Kitchen finds itself trading 17 percent lower since peaking last month.

Outside of Chipotle Mexican Grill (CMG), it seems that the market isn't hungry for eatery stocks. This could be problematic for El Pollo Loco, which on Monday filed to go public. The chicken chain with more than 400 locations is hoping to raise $100 million in the offering, but it could run into resistance when it comes to Wall Street sympathy. Eatery stocks need a new recipe or at least more success stories to restore the market's confidence.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool recommends Chipotle Mexican Grill and Yelp. The Motley Fool owns shares of Chipotle Mexican Grill. Try any of our newsletter services free for 30 days.