Something Cooking at Zoes?

If you read enough about successful investors, very few of them have madetheir fortunes by investing in things that they don’t understand. Peter Lynch was the champion of investing in things that you know and  that seemed to work out OK for him. Some companies are easier to get close to than others. Restaurants, retailers, streaming media; these are some areas that we can experience for ourselves before making any investment decisions. By contrast, I don’t think that NVIDIA (NVDA:NASDAQ) is giving out tours of their chip manufacturing operations and  even if they did, I wouldn’t understand it. Same thing with biotechnology. My chemistry education ended in ninth grade so I’m kind of stuck.

Restaurants provide a great opportunity to experience firsthand whether a stock is worth buying. I’ve been watching Zoe’s Kitchen (ZOES: NYSE) for a few years ever since  they started popping up a few years ago. Zoe’s offers a menu of fresh, wholesome Mediterranean inspired dishes “delivered with Southern hospitality”. The chain was founded in 1995 by Marcus and Zoe Cassimus in Plano, TX. They have grown to 203 locations in 17 states. Impressive as that may be, the performance of the stock has been equally unimpressive, off over 48% in the last year.  The lunch time and early dinner space is fiercely competitive with new entrants popping up all the time. You have to be able to distinguish yourself or have a location that provides a natural flow of walk by traffic. The quality of the food isn’t the most important thing, oddly enough. I read somewhere that 70% of their revenues come from affluent women. That’s a demographic with alot of choices on where to eat lunch.

An early dinner for two at Zoes was a little over twenty dollars without drinks. Therein lies the problem: the associates behind the register didn’t offer us drinks, a notoriously high margin product for most restaurants. The food was actually really good but the experience left alot to be desired. Maybe it was just a one time deal or maybe the staff are poorly trained. Given the performance of the stock, every dollar of revenue would seem to be critical. My overall impression of Zoe’s is that it was “Just OK” and being “Just OK” in the competitive restaurant business is probably “just enough” to be trouble long term.

Sources: CNBC.com, Wikipedia, Zoe’s Kitchen Corporate Site

DISCLOSURE: THIS ARTICLE WAS WRITTEN FOR INFORMATIONAL PURPOSES ONLY AND SHOULD NOT BE RELIED UPON AS INVESTMENT ADVICE. THIS IS NOT  A RECOMMENDATION TO BUY OR SELL ANY SECURITY SPOKEN OF HERE. ALL INVESTMENTS INVOLVE RISK AND REQUIRE DUE DILIGENCE TO DETERMINE IF THEY ARE APPROPRIATE FOR YOU. I DO NOT PERSONALLY OWN ANY OF THE STOCKS MENTIONED HERE AND DO NOT PLAN TO INITIATE ANY POSITIONS.