Wingstop: Business Is Cruising Far But Its Stock Is Flying Too High

seekingalpha04-24

Wingstop's growth continues as revenue increased by 28% YoY. The company executing its plans to open 7,000 stores.The company primarily operates a franchise model, allowing for quick expansion and ...

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The company executing its plans to open 7,000 stores.The company primarily operates a franchise model, allowing for quick expansion and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4685619-wingstop-business-is-cruising-far-but-its-stock-is-flying-too-high\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>Wingstop: Business Is Cruising Far But Its Stock Is Flying Too High</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nWingstop: Business Is Cruising Far But Its Stock Is Flying Too High\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-24 21:19 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4685619-wingstop-business-is-cruising-far-but-its-stock-is-flying-too-high><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Wingstop's growth continues as revenue increased by 28% YoY. The company executing its plans to open 7,000 stores.The company primarily operates a franchise model, allowing for quick expansion and ...</p>\n\n<a href=\"https://seekingalpha.com/article/4685619-wingstop-business-is-cruising-far-but-its-stock-is-flying-too-high\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"BK4588","symbol_name":"碎股","start_time":0,"source_url":"https://seekingalpha.com/article/4685619-wingstop-business-is-cruising-far-but-its-stock-is-flying-too-high","article_id":"2429456564","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/471149141/image_471149141.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2429456564","pubTimestamp":1713964766,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Wingstop's growth continues as revenue increased by 28% YoY. 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The company executing its plans to open 7,000 stores.The company primarily operates a franchise model, allowing for quick expansion and growth.WING has demonstrated impressive growth. However, its valuation is significantly higher than industry peers.joecicak/E+ via Getty Images Sometimes I stumble upon great, simple businesses that are unfortunately trading at valuations so far from reality. I believe that this is the case with Wingstop (NASDAQ:WING). Going through the company's financials, I like how the business is well-run, efficient, and simple. Unfortunately, it is priced much higher than some disruptive technology stocks. Wingstop Grows Inorganically and Organically Looking at Wingstop's Q4 2023 and full-year results, it can be seen that the company is in full swing. The company's headline total revenue for Q4 2023 saw a 21.1% increase compared to the same time last year, from $104.9 million to $127.1 million. In the full-year of 2023, total revenue increased to $460.1 million from $357.5 million. The company made Royalty revenue of $207 million for 2023 an increase of $48.5 million. To understand the business model, it should be noted that Wingstop primarily operates a \"franchise\" model. The vast majority, 98% in 2023, of Wingstop's stores are independent franchisees. This allows the company to be very \"asset-light\" (i.e., low capital expenditures) and therefore have the ability to expand and grow quickly. The company reported 255 net new store openings in 2023 (net of closed stores) which was slightly higher than the 228 net new store openings in 2022. The company had 2214 restaurants at the end of 2023, with 1877 being domestic and 288 international. Wingstop management is expecting to continue on this growth trajectory as it plans to open 270 net new restaurants worldwide. Management has stated a long-term goal of 7000 stores worldwide. Press Release (Wingstop Investor Relations) As mentioned in the company's 10-K, Wingstop franchisees are doing very well for themselves. So much so that existing franchisees are opening additional stores. Wingstop is positioned as a \"low capital outlay, high return opportunity\". This is good news for the company, as keeping your franchisees happy is key to Wingstop achieving its ambitious restaurant opening target.  We believe the growing popularity of the Wingstop experience and the operational simplicity of our restaurants translate into attractive economics at our franchised- and company-owned locations. Existing franchisees accounted for more than 90% of franchised restaurants opened in each of 2022 and 2023, which we believe further underscores our restaurant model's financial appeal. Upon the opening of a new restaurant, its sales volume generally builds year after year. Our domestic average unit volume (\"AUV\") has grown consistently, approximating $1.8 million during fiscal year 2023. Our domestic operating model provides for a low average initial investment of approximately $480,000, excluding real estate purchase or lease costs and pre-opening expenses. In year two of operation of a new restaurant, we target a franchisee unlevered cash-on-cash return of approximately 70%+. We believe low entry costs and high returns provide a compelling investment opportunity for our franchisees that has helped drive the continued growth of our system  Apart from new store openings, the company has also demonstrated impressive organic growth. In 2023, the company saw domestic same-store sales growth of 18.3%. Looking specifically at company-owned stores, domestic same-store sales growth was 8.2%. Having good same-store sales growth is extremely important as this is a measure of the growth in sales of existing stores that have been operating for a year or more. In other words, it is to remove the effect on Sales growth by simply opening more stores. According to Wingstop's 10-K, \"Domestic same-store sales have increased for 20 consecutive years beginning in 2004, which includes 5-year cumulative domestic same store sales growth of 62.2% since the beginning of fiscal year 2019\". This demonstrates that apart from opening new stores, demand for the company's product is growing organically as well. Wingstop Has a Strategy to Continue on Its Growth Trajectory What impresses me about Wingstop is how simple their business model is. The company is essentially a \"Chicken wings franchise\" and chicken wings are a dime-a-dozen at your local pubs and chains. However, the details are in the company's execution of its strategy and how nimble management has been to respond to customer needs. The company has one of the highest Profit Margins at 15.25% compared to its restaurant peers. In fact, among quick-serve/fast casual type restaurants, Wingstop beats out companies like Chipotle (CMG) at a 12.5% Profit Margin, Darden Restaurants (DRI) at a 9.4% Profit Margin, and Shake Shack (SHAK) at a 1.86% Profit Margin. It's only really pure fast-food chains that see a higher Profit Margin. Data by YCharts The company has also shown nimbleness and the ability to innovate to reach that essential younger demographic. The company's chicken sandwich offering, which comes in 12 flavors, has begun to attract Gen Zers or millennials. In a Business Insider article, CEO Michael Skipworth said on an earnings call \"… the diners who come in for Wingstop's chicken sandwiches \"look a little bit different\" to its core customers, without specifying who its core customers are. The other area where Wingstop is innovating is on the digital front. The company expects to roll out a new in-house technology platform by Q2 2024. Digital sales consist of approximately 67% of the company's transactions. In my view, digital sales tend to be stickier, as having a solid digital platform encourages customer loyalty and repeat purchases. One only has to look at the success of Domino's (DPZ) or Starbucks (SBUX) to see what positive impact having a strong digital infrastructure has. Management seems to have a keen eye on what a solid digital platform entails, namely \"hyper-personalization\". Having offers or products that are keyed into a specific individual increases the chance of purchase. Management mentioned in an earnings call, \"We are just scratching the surface on personalization, and we see this as a key part of our strategy for sustaining same-store sales growth.\" As I mentioned earlier, Wingstop has had an impressive streak of growing its top-line organically. Valuation and Conclusion The issue with Wingstop, unfortunately, is the company's valuation. The company's stock is trading at extreme levels of valuation that, in my opinion, even the most optimistic cannot support. Over the past 12 months, WING stock has risen by roughly 80% and is currently trading at a P/E ratio of 139x for the trailing twelve months and 114x forward. This is much higher than the sector median of roughly 14-15x. Restaurant stocks tend to trade at lower multiples as the industry is fairly mature and competition tends to be high. Relative Valuation (Seeking Alpha) As mentioned, Wingstop has above-average revenue growth and profitability. This is still somewhat constrained by the industry it is in. For example, as mentioned, in 2023 Wingstop opened 270 net new restaurants. This is the highest as it's ever been and is impressive for the restaurant industry. However, Wingstop will never be able to scale as fast as a technology firm, as it is constrained physically. Therefore, to see Wingstop trade at disruptive technology levels is quite surprising in my opinion. To illustrate how far off the valuation of WING stock is from reality, we can use a simple comparison. Wingstop had $460.1 million in revenue and $70.2 million in income with 2214 restaurants. Domino's in 2023 had revenue of $4.48 billion, net income of $519.1 million with 20,591 stores. So roughly, looking at this, Domino's is roughly 10x the size of Wingstop. However looking at their market caps, Wingstop has a market cap of $10.2 billion vs. Domino's $16.5 billion.  It will take many years for Wingstop to reach the size of Domino's as management's long-term target is 7000 stores, far from Domino's 20,591 stores. At the current valuation, despite being a great business, Wingstop's stock isn't worth it. 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