Zoe's Kitchen: The "Next Chipotle"

09/10/2015 8:00 am EST

Focus: STOCKS

Briton Ryle

Editor, The Wealth Advisory

This featured recommendation is one of my favorite stocks right now; I’m calling it the “Next Chipotle” due to the similarities between the two at the same stage of expansion, asserts Briton Ryle, editor of The Wealth Advisory.

Zoe’s Kitchen (ZOES) is fast casual dining, like Chipotle Mexican Grill (CMG) and Panera Bread (PNRA)—both have been top performing stocks—as Americans flock to restaurants that offer high quality fast food.

Zoe’s brings Mediterranean-style food to the fast casual dining space. That means grilled chicken, chicken kabobs, chicken pizza, chicken sandwiches, and salads.

It also has plenty of grilled beef offerings, along with a couple seafood dishes, a couple soups, several salads, and hummus.

Like Chipotle, Zoe’s uses preservative- and antibiotic-free meat and everything is made daily, so it is fresh.

It currently has 140 company-owned stores and just three franchises after it
recently bought three back from the owners. It is adding about 30 stores a year and has boasted 50% revenue growth for the last couple of years.

The company wants to have 1,500 locations open by 2022. If it can simply maintain the average of $1.5 million in annual sales per location, that would mean $2.4 billion in annual sales, about 15 times what it does now.

Zoe's Kitchen recently reported $0.05 a share in earnings vs. expectations of $0.04. Revenues also beat, $54.5 million vs. the $53.5 million estimate. Same-store sales growth came in at 5.6%, which is also very good.

So why's the stock down? Well, Zoe's put up 7.7% same-store sales growth in the first quarter, so maybe investors are disappointed with last quarter's 5.6%. But I'll tell you: If you're disappointed with 5.6%, you're crazy.

Zoe's is executing its expansion very well. Also, remember that Zoe's is still mainly a regional chain the Southeast. It has yet to hit the really big population centers like New York, Boston, Los Angeles, San Francisco, and Chicago.

This is a long-term growth investment. Current prices around $35 look pretty attractive. Every Wealth Advisory subscriber should own this stock.

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