This recent IPO held up well during the recent market decline, and is in an expansive mode.
Zoe’s Kitchen (ZOES)
from Cabot Top Ten Trader
Zoe’s Kitchen (ZOES) is a classic cookie-cutter story that we believe can go very far in the years ahead. Think of it as a Chipotle Mexican Grill, but instead of burritos and tacos, Zoe’s serves up Mediterranean-inspired dishes with a little Southern flair—pitas, hummus, chicken sandwiches and kabobs, along with a ton of fresh fruits and veggies, using no fryers or microwaves during preparation. (Interestingly, women represent 70% of customer visits, and the average household income of each customer is north of $100,000!)
What we like about this story is that it’s large enough to be a proven concept—Zoe’s has 125 restaurants in 15 different states, and last year its top 20 performing locations came from seven different states, so this isn’t just a business with local appeal. But it also has huge growth potential; the firm will boost its store count by about 30 this year, and a similar number of openings in 2015 look reasonable. Long-term, the top brass thinks it can have 1,600 locations!
Throw in solid, mid- to high single-digit same-store sales growth, and success is just a matter of prudently expanding the store base over time. Sales growth is excellent (and accelerating), while earnings are near break-even as the firm puts its money into expansion.
ZOES just came public in April and ran to about 35 in July before forming what is now a 16-week, double-bottom base that corrected only 24% from high to low. And what’s really impressive is the action of the past few weeks—while the market has imploded, ZOES has ramped up six weeks in a row, albeit with lots of wild daily swings.
The only rub here is that the stock is very thinly traded (just $17 million per day), so if you decide to buy, keep it small and use a very loose leash.
Suggested Buy Range: 32-34
Suggested Loss Limit: 29.5-30.5
Cabot’s buy range is valid for two weeks.
Michael Cintolo, Cabot Top Ten Trader, www.cabot.net, 978-745-5532, October 20, 2014