Is it too late to buy this hot restaurant stock?
Wingstop (NASDAQ:WING) has quietly been one of the best-performing stocks on the market since its 2015 initial public offering. In fact, this chicken wing restaurant has recorded an average annual return of 31.9% since its IPO in June 2015. As of February 22nd, it has recorded an average annual return of 38.3% over the past five years.
Since only NVIDIA (NASDAQ:NVDA) and Tesla (NASDAQ:TSLA) have performed better over the past five years, these returns can be matched by almost any other stock over that period, even the Magnificent Seven.
Last year, Wingstop stock returned 87%, and is expected to return -17% in 2022, beating the S&P 500 again. Now in 2024, Wingstop continues to shine, up about 35% year to date, including an 8% jump on Thursday. This comes just one day after the company posted strong fourth-quarter earnings results that beat expectations.
Where does Wingstop go from here? Can investors still expect that kind of performance?
Wingstop’s Strongest Year on Record
Wingstop had another strong performance in the fourth quarter, reporting revenue of $127 million, up 21% year-over-year. The company’s revenue includes royalties and fees from franchisees, sales from company-owned restaurants, and advertising fees. Overall, Wingstop’s net income for the quarter rose 7% to $19 million, or 64 cents per share.
The company’s broader system-wide sales increased 24.5% in the fourth quarter to $966 million, which includes net sales from both company-owned and franchised restaurants. Franchisees account for 1,877, or 98%, of Wingstop’s total 2,214 restaurants, 1,926 of which are in the United States.
A company’s system-wide sales growth allows management to measure loyalty revenue, same-store performance, brand health and competitiveness in the marketplace. System-wide sales growth is generally driven by restaurant openings and same-store sales growth. In the fourth quarter, Wingstop opened 115 net new stores and same-store sales increased 21%.
For the full fiscal year, Wingstop’s sales increased 29% to $460 million, while systemwide sales increased 27% to $3.5 billion. Net income increased 32% to $70 million, or $2.35 per diluted share. The chain opened 255 net new stores this year, up 13%, and domestic same-store sales increased 18%.
Michael Skipworth, President and CEO of Wingstop, said: “2023 was the strongest year in Wingstop’s history. Driven primarily by transactions, we achieved 18.3% domestic same-store sales growth, achieving an unprecedented 20th consecutive year of domestic same-store sales growth. -Store sales growth.”
1 warning sign
Wingstop’s stock initially fell about 4.6% on Wednesday after the earnings were released, perhaps because of an outlook that may have disappointed some investors. Wingstop’s 2024 outlook calls for adding 270 new stores and mid-single-digit domestic same-store growth. The latter will be lower than same-store sales growth of 18% in 2023. The company also expects selling, general and administrative expenses to increase to $108 million this year from $96.9 million last year.
On the earnings call, Chief Financial Officer Alex Kaleida said the company is targeting 15% adjusted EBITDA growth in 2024, which is lower than the 39% growth recorded in 2023.
But to correct the overreaction to the convincing report, Wingstop shares rose 8% to $335 per share on Thursday, hitting an all-time high of $340 during the trading session.
The expected slowdown in growth isn’t a huge concern, but Wingstop’s valuation is something to watch. The rocket ship it rode on was very highly regarded. The price-to-earnings (P/E) ratio is 132, and the forward P/E is 108. This is a good company that is putting a lot of effort into it, but for that reason I am hesitant to add to it right now. It has been highly regarded, especially after its recent surge.
disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.
