Zoe’s Kitchen Inc (NYSE:ZOES) may be the next big edible opportunity. That’s what investors who drove the price of the company’s shares up today thought, right after the company went public. The company’s shares opened at $15 on the New York Stock Exchange this morning. At time of writing, shares in the Mediterranean-style restaurant chain were selling for more than $25.
Zoe’s Kitchen Inc (NYSE:ZOES) is one of several companies to benefit from growth stories in the restaurant business. The company follows in the footsteps of Chipotle Mexican Grill, Inc. (NYSE:CMG), Papa John’s Int’l, Inc. (NASDAQ:PZZA), and Jack in the Box Inc. (NASDAQ:JACK) in showing that investors are hungry for restaurant firms. After today’s spike, all Zoe’s Kitchen management has to do now is show that it’s worth the risk.
Zoe’s Kitchen brings Mediterranean mainstream
The kind of food served at Zoe’s Kitchen Inc (NYSE:ZOES) is a little different from other chain restaurant fare. The Plano, Texas-based company offers customers an extensive range of Mediterranean style food from pittas to kebabs. Quality fast food has become the word to live by since Chipotle Mexican Grill, Inc. (NYSE:CMG) demonstrated the growth prospects in the market.
Zoe’s Kitchen Inc (NYSE:ZOES) follows in that tradition, but it’s a small company, and one that hasn’t proven a knack for growing and branding itself. The 111 stores currently under the umbrella of the company are spread across fifteen states. The company says it plans to double that number in the next four years. That pace is impressive, but it’s currently on paper, and it is unclear how the company’s offerings will be greeted by different types of markets.
Restaurant growth may fail investors
With the shares of so many restaurant chains skyrocketing in recent years, now is the time to ask what exactly the market can bear in terms of choice. There is only a certain amount of money that Americans can spend on eating out, and all of the recent high flying restaurants may not see their potential growth borne by the consumers.
Potbelly Corp (NASDAQ:PBPB), a sandwich company that went public last October, has lost more than 40% of its value since its IPO. That company also spiked on its first day of trading. With a market cap of more than $300 million, Zoe’s Kitchen Inc (NYSE:ZOES) is being sold as another big growth story, but there seems little substance to back up that narrative.
With the recent pressure on momentum stocks, one might have expected the IPO of a growth company to be met with skepticism and restraint. Neither of those words describes the behavior of investors buying into Zoe’s Kitchen Inc (NYSE:ZOES) today. A slowdown in the prospects of growth stocks is not being felt across the board, and, despite turning market sentiment, investors seem willing to bet big on growth stories as long as they sell a physical product.