Noodles has gotten torched over the last six months - since March 2025, its stock price has dropped 47.8% to $0.70 per share. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is there a buying opportunity in Noodles, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think Noodles Will Underperform?
Despite the more favorable entry price, we're sitting this one out for now. Here are three reasons there are better opportunities than NDLS and a stock we'd rather own.
1. Flat Same-Store Sales Indicate Weak Demand
Same-store sales is an industry measure of whether revenue is growing at existing restaurants, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).
Noodles’s demand within its existing dining locations has barely increased over the last two years as its same-store sales were flat.
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Noodles, its EPS declined by 47.8% annually over the last six years while its revenue grew by 1.2%. This tells us the company became less profitable on a per-share basis as it expanded.
3. High Debt Levels Increase Risk
As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.
Noodles’s $106.4 million of debt exceeds the $2.26 million of cash on its balance sheet. Furthermore, its 6× net-debt-to-EBITDA ratio (based on its EBITDA of $17.33 million over the last 12 months) shows the company is overleveraged.
At this level of debt, incremental borrowing becomes increasingly expensive and credit agencies could downgrade the company’s rating if profitability falls. Noodles could also be backed into a corner if the market turns unexpectedly – a situation we seek to avoid as investors in high-quality companies.
We hope Noodles can improve its balance sheet and remain cautious until it increases its profitability or pays down its debt.
Final Judgment
Noodles falls short of our quality standards. Following the recent decline, the stock trades at 2.2× forward EV-to-EBITDA (or $0.70 per share). At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now. We’d recommend looking at a top digital advertising platform riding the creator economy.
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