Is it "Bo Time" for investors after a selloff in the restaurant's stock?
Regional chicken chain Bojangles' has built a loyal following in the Southeast, but Wall Street remains divided on whether the latest hot restaurant stock is a "buy."
On Tuesday, the Bojangles' bears appeared to be win out, dragging the stock 7.5 percent lower.
But even with the drop, Bojangles' stock is trading more than 35 percent above its IPO price from early May.
Bojangles' presents an opportunity for investors to buy into a fast-growing regional chicken chain, but if the performance of other restaurants that recently held IPOs, such as Shake Shack and Noodles, is any indication though, the ride could be bumpy.
So what are the pros saying as they weigh in on the stock for the first time Tuesday?
Caution about valuation
Some analysts cited the chain's high valuation as a reason for caution. Its price-earnings ratio based on 2016 estimates stands at 34.7, a premium over some more-established chicken chains like Popeyes Louisiana Kitchen at 25 times, but sharply behind Shake Shack at a whopping 529 times.
Wells Fargo analysts initiated coverage with a "market perform" rating due to "an approximately 30 percent premium to the mean valuation of the three companies (LOCO, FRGI and PLKI) that we believe represent the most appropriate peers based on business model, life cycle stage, capital structure and fundamentals" despite what it sees as strong fundamentals at the chicken chain.
Over at RBC, analysts wrote that the chain's valuation is "reflective of the company operating at an extremely high level."
But they told clients to wait for a more reasonable entry point.
Currently, three firms have recommend Bojangles' stock as a "buy" while five are sitting on the sidelines for now.
Piper Jaffray placed a price target of $27 and a "neutral" rating on the shares, saying, "We believe more upside, on a relative basis, exists elsewhere within our coverage universe."
One issue is the chain's ownership structure. It operates a hybrid model with about 40 percent of locations owned by the company and another 60 percent franchised.
"We believe that (the) market has shown preference on the margin for concepts that are largely company-operated or primarily franchised," Piper noted.
Enthusiasm about unit expansion
Bojangles' has already achieved enviable growth in the restaurant space, and some analysts see an opportunity for that to continue.
Analysts at William Blair, which placed an "outperform" rating on the stock are especially optimistic, seeing the potential for nearly 5,000 locations nationwide serving fried chicken and biscuits, up from about 622 locations and greater than the low end of management's projection of at least 3,500 across the nation.
Bojangles' faces its next big test June 11 when it delivers its first quarterly earnings report as a public company.