Reporter's Notebook

Looking for the next Chipotle, investors bid up restaurant IPOs

Too much is often made of a company’s first day stock performance in an initial public offering. IPOs are often engineered to perform well on Day One. Some take a bit of time to generate investor interest. Others struggle to maintain any early momentum.

Still, the first day of trading does provide an indication of investors’ first impressions of a stock. And in that sense, investors have been jumping into the restaurant industry — or, to be precise, the fast-casual sector — with both feet the past two years.

Seven restaurant companies have gone public in 2013 and 2014 and they’ve averaged first-day pops of 68.9 percent. Take out Papa Murphy’s 5.6 percent IPO earlier this year and the Dave & Buster’s 8-percent increase in its October offering, and the average shoots up to 93.74 percent.

And, we might note, El Pollo Loco increased 60.2 percent on its first day, but within a few days it was up 175 percent.

Let’s put it another way: When it went public in 2006, Chipotle’s offer price was $22 a share. By the end of the day, it was trading at $44, making it the first triple digit IPO in five years and the first one in the restaurant industry that anybody could remember.

Over the past two years, three restaurant chains have bested Chipotle’s first-day performance.

Last year, Noodles & Company jumped 104 percent on its first day. Potbelly Corp. jumped 119.8 percent. And last month, Habit Burger stock rose 119.7 percent, barely missing Potbelly’s mark by a tenth of a percent.

The performance of the past two years demonstrates investor interest in high growth chains, preferably in the fast-casual sector.

Compare the performance of the seven restaurant chains these past two years with the IPOs of the previous two years. Five concepts went public in 2011 and 2012, and their stocks rose 19.3 percent on average the first day of trading. Throw out Dunkin’ Brands, which rose 46.6 percent in its 2011 IPO, and the average dips to 12 percent.

To be sure, the market was much tougher at that time — two chains, for instance, pulled their IPOs in 2012. Yet the big difference now is the willingness of fast casual concepts to go public.

When Noodles went public last year, it was the first fast-casual IPO since Chipotle. Four of the seven chains that went public these past two years are considered fast-casual concepts and the fifth, El Pollo Loco, was drawing some public comparisons to Chipotle. (The other two were, of course, the take-and-bake pizza chain Papa Murphy’s and the casual dining concept Dave & Buster’s.)

In addition, most of the restaurant chains that went public this year and last year could be considered growth chains, with strong development and sales growth potential.

Of course, first-day performance is hardly a predictor of future success. Potbelly, for instance, has been trading under its $14 offer price since June.

Still, the performances show that investors are itchy to get in on the ground floor of a chain that could even come close to the immense success Chipotle has enjoyed since that 2006 IPO. Because, if you had been lucky enough to buy $1,000 in Chipotle stock at the end of that first day of trading, you’d have well over $15,000 right now. That would be considered a good investment.

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