Wingstop Inc (WING, Financial) has seen a daily gain of 2.71%, but a 3-month loss of 6.1%. With an Earnings Per Share (EPS) (EPS) of 2.1, the question arises: is this stock modestly undervalued? This article aims to provide a comprehensive valuation analysis of Wingstop (WING), delving into its financial performance, growth prospects, and intrinsic value. We invite you to read on and gain valuable insights into this intriguing financial journey.
Company Snapshot
Founded in 1994 in Garland, Texas, Wingstop Inc (WING, Financial) is a restaurant operator specializing in bone-in and boneless chicken wings, chicken tenders, fries, and recently added chicken sandwiches. The company has grown significantly since its inception, with nearly 2,000 global stores at the end of 2022. This growth has positioned Wingstop as the 40th-largest restaurant chain in the U.S. by system sales, according to Technomic data. With a 98% franchised model, Wingstop generates most of its revenue from franchise royalties and advertising fees, supplemented by a small number of company-owned stores.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair trading value of the stock. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Currently, with a price of $178.22 per share, Wingstop has a market cap of $5.30 billion, indicating that the stock is modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it is crucial to carefully review a company's financial strength before deciding to buy its stock. A great starting point is looking at the cash-to-debt ratio and interest coverage. Wingstop has a cash-to-debt ratio of 0.27, which is lower than 56.45% of the 349 companies in the Restaurants industry. GuruFocus ranks Wingstop's overall financial strength at 5 out of 10, indicating fair financial strength.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk to investors. Higher profit margins usually indicate a better investment compared to a company with lower profit margins. Wingstop has been profitable for 10 out of the past 10 years. Over the past twelve months, the company had a revenue of $413.40 million and an Earnings Per Share (EPS) of $2.1. Its operating margin is 25.3%, which ranks better than 95.44% of the 351 companies in the Restaurants industry. Overall, Wingstop's profitability is ranked 10 out of 10, indicating strong profitability.
Growth is a critical factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long-term performance of a company's stock. Wingstop's 3-year average revenue growth rate is better than 93.01% of the 329 companies in the Restaurants industry. Its 3-year average EBITDA growth rate is 27.6%, which ranks better than 82.31% of the 277 companies in the Restaurants industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) and the weighted cost of capital (WACC). The ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want the ROIC to be higher than the WACC. For the past 12 months, Wingstop's ROIC is 31.1, and its WACC is 14.03.
Conclusion
In conclusion, Wingstop (WING, Financial) appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 82.31% of the 277 companies in the Restaurants industry. To learn more about Wingstop stock, you can check out its 30-Year Financials here.
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