Potbelly IPO Appetizing, but Watch for Indigestion

NEW YORK ( TheStreet) -- Potbelly ( PBPB)'s big IPO is a reminder of how appetizing restaurant stocks can be. They're easy to understand, at least on the surface, and they always make great stories.

Great stories always push stocks -- especially in THIS market.

And what a great story Potbelly is: Lots of new restaurants, rising sales, an excellent pedigree with the backing of Maveron and (drumroll!) it's profitable.

Making it even more tasty, according to the company: Same-store sales have been up 12 of the past 13 quarters.

However, a closer read of the prospectus shows that last quarter's 3% gain was a slip from the year-ago 3.3% gain. And in first six months of this year, same-store sales were up only 1.5% vs. the year-earlier 4.8%.

Noodles ( NDLS) had a similar same-store sales characteristic when it went public, but like Potbelly, investors were shrugged it off.

The reason: With restaurants and retail, at least in the early going, it's all about the number of stores they can put up. More stores equal sales growth, equal higher stock price. Piece-o-cake. (In theory, at least.)

Reality: Just because restaurants put up more new stores doesn't mean they'll be good stores. The restaurants space is a highly (and seemingly increasingly) competitive space to begin with.

But one critical key to quality growth is good real estate and, with restaurants as in retail, there are only so many good sites -- especially with so many public and private chains jockeying for the best locations.

For example, privately-held Jimmy Johns, a good comp for Potbelly, already has 1,600 locations versus about 300 for Potbelly. Unlike Potbelly, most appear to be franchised but, still, have they already gobbled up the good sites?

Hard to say, but this much is clear: Once restaurants go public, the pressure is on to expand. And that's where the trouble comes in. The goal is Panera ( PNRA), but the ultimate reality for many is Cosi ( COSI). Potbelly? Your guess is as good as mine. But, boy, the sandwiches and salads are great.

--Written by Herb Greenberg.

(Originally published on Real Money's Columnist Conversation on Oct.4 at 10.16 am EST)
Herb Greenberg, editor of Herb Greenberg's Reality Check, is a contributor to CNBC. He does not own shares, short or trade shares in an individual corporate security.