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Shares of Chuy's Holdings (CHUY) had a successful public debut on Tuesday. Shares of the full-service restaurant offering Mexican food ended the week at $17.12, up 32% above the offering price of $13.00 per share.

The public offering

Chuy's sold 5.8 million shares for $13 a piece in its recent IPO. Chuy's, which currently operates 36 restaurants raised $75.8 million in gross proceeds in the process. Including the 15% overallotment, also known as the "greenshoe", Chuy's raised almost $80 million in net proceeds. Based on a $13 offering price, the firm is valued at $195 million. All the shares are offered by the company with none being offered by selling shareholders. In total, about 45% of its 15 million shares outstanding were being offered in the public offering. This includes the greenshoe over-allotment option. At Friday's closing price of $17.12, the firm is valued at $257 million. Major banks which brought the company public were Jefferies, Baird, KeyBanc Capital Markets and Raymond James.

Valuation

Chuy's was founded in 1982. The company has generated annual revenues of $130.6 million for its annual year of 2011, up 38% on the year before. The company net earned $3.5 million that year, or $0.20 per share, up from $3.3 million the year before. Chuy's started 2012 on a good note. First quarter revenues rose 28% to $37.5 million, although net income fell to $0.4 million. The company hopes to expand its current restaurant count of 36 to 39 by year's end. Chuy's ended the first quarter with $82 million in debt. However, the net proceeds of the offering are sufficient to repay all of Chuy's outstanding debt.

The firm reported a comparable same store sales growth of 3.1% for the full year of 2011, a figure which dropped to 2.6% in the first quarter of 2012. The average check for the discount restaurant came in at $12.97 per customer. Based on a rough annual revenues estimate just north of $150 million for 2012, the firm is valued at 1.7 times annual revenues.

Investment Thesis

Chuy's public offering was a great success, with shares already trading at $17.12, far above the initial midpoint of its offering range of $12 per share. The success of the offering came as a small surprise given that its much larger competitor, Chipotle Mexican Grill (CMG), experienced a very rough week. Shares of Chipotle lost over 25% of their market value after warning for more difficult circumstances in the remainder of 2012. Although Chipotle is much more profitable than Chuy's, it trades at a significant premium to its smaller competitor. Chipotle trades at roughly 4 times its 2011s annual revenues compared to just 1.7 times for Chuy's. However, Chipotle is much more profitable, generating annual net margins of 9.5%, compared to a mere 2.2% for Chuy's.

Unless Chuy's guides for strong margin improvements in the quarters to come, I would not jump on the bandwagon and stay on the sidelines.

Source: Chuy's: Successful IPO Debut Despite Chipotle's Freefall