Wingstop Inc (WING, Financial) recently recorded a daily gain of 2.21%, despite a 3-month loss of -19.7%. With an Earnings Per Share (EPS) (EPS) of 2.1, the question arises: is the stock modestly undervalued? This article aims to provide a comprehensive valuation analysis of Wingstop (WING), offering readers valuable insights into the company's financial position and potential for future returns.
Company Overview
Founded in 1994 in Garland, Texas, Wingstop is a restaurant operator specializing in indulgent bone-in and boneless chicken wings, chicken tenders, fries, and recently chicken sandwiches. With nearly 2,000 global stores at the end of 2022, Wingstop ranks as the 40th-largest restaurant chain in the U.S. by system sales, according to Technomic data. Its revenue primarily comes from franchise royalties and advertising fees, supplemented by a small footprint of company-owned stores. With a current stock price of $157.85 and a GF Value of $219.06, the stock appears to be modestly undervalued.
Understanding the GF Value
The GF Value represents the intrinsic value of a stock derived from our proprietary method. It considers historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value that the stock should be traded at.
Wingstop's stock appears to be modestly undervalued according to our valuation method. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued, leading to poor future returns. Conversely, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued, likely leading to higher future returns. With a market cap of $4.70 billion, Wingstop's stock appears to be modestly undervalued.
Because Wingstop is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding whether to buy shares. Wingstop has a cash-to-debt ratio of 0.27, ranking worse than 56.86% of 350 companies in the Restaurants industry. Based on this, GuruFocus ranks Wingstop's financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Wingstop has been profitable 10 over 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 95.7% of 349 companies in the Restaurants industry. Overall, GuruFocus ranks the profitability of Wingstop at 10 out of 10, indicating strong profitability.
Growth is a critical factor in the valuation of a company. Wingstop's 3-year average annual revenue growth is 21%, ranking better than 93.05% of 331 companies in the Restaurants industry. The 3-year average EBITDA growth rate is 27.6%, ranking better than 81.65% of 278 companies in the Restaurants industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Wingstop's ROIC was 31.1, while its WACC came in at 13.72.
Conclusion
In summary, the stock of Wingstop appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 81.65% of 278 companies in the Restaurants industry. To learn more about Wingstop stock, check out its 30-Year Financials here.
To find out high-quality companies that may deliver above-average returns, please check out the GuruFocus High Quality Low Capex Screener.
