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Noodles & Co. sinks to all-time low after another sales miss

The trading disaster that is Noodles & Co. (NDLS) was holding to form early Thursday, plunging 21% after another weaker-than-expected quarterly report delivered further misery to anyone owning the shares.

Following its fourth consecutive quarterly sales shortfall and a reduced outlook for the full year, the stock was losing $5.24 to $19.97, its lowest price since it started trading 14 months ago.

Investors had viewed Noodles' debut as that of a restaurant with the opportunity -- possibly -- to be "the next Chipotle." Instead, they've gotten little but distress if they've been with the name for any time aside from brief, fortunate upward spurts. The stock opened for trading at $32 after its June 2013 IPO, rising to $51.97 days later. It's been stepping lower since, but the current decline would be the worst trading day it's had. Previously, its largest single-day drop was a 13.7% fall on April 30, after disappointing first-quarter earnings.

Even before the latest decrease, shares were down 29.4% in 2014. At this point, they're 61% below their peak.

For the second quarter, revenue did climb 11.5% from the year-earlier period to $99.5 million, the Broomfield, Colo.-based noodle seller said. However, analysts were expecting $103.3 million, according to FactSet. In the five quarters Noodles has reported as a public company, it only surpassed revenue estimates the first time. Meanwhile, adjusted earnings of 12 cents a share missed the consensus of 15 cents and were down a penny from last year. Same-store sales fell 0.6% at company-owned restaurants.

Noodles has now opened 25 company stores through the first half, compared with a goal of 45 to 50 for the entire year, so it says the high end is within reason. Also, five franchised locations have opened. The company has said it believes it can eventually have 2,500 stores, up from 410 operating today, most of which are corporate-owned.

Of course, that distant future wasn't what shareholders were thinking about. They were worrying about the news that Noodles was lowering its outlook. The company now says same-store sales will be flat for the year, with no growth in adjusted EPS, whereas before it was forecasting a 2.5% to 3% comparable-sales increase and a 25% improvement in adjusted profits.

"We are seeing modest top-line momentum and are making the right investments for the business long-term," Kevin Reddy, chairman and CEO, said in a press release. "However, given results during the first half of the year, we believe it is judicious to temper our 2014 outlook relative to prior expectations."

It may be judicious, but for those with shares that still have one of the highest forward price-to-earnings ratios in the restaurant group at 52, it's not remotely comforting. Short sellers have found Noodles difficult to pass up, and they've been a consistent presence. Currently making up 17% of the float, they have plenty to celebrate, again.

That Noodles is profitable and is continuing with its expansion plans are positives. Regardless, it's clear the market has continued to overvalue the stock, and even with the latest selloff, that might not be enough to make it a good buy for many investors.