Wingstop Inc (WING, Financial) recently experienced a daily loss of 2.89%, yet it has gained an impressive 25.51% over the last three months. With an Earnings Per Share (EPS) of 2.81, investors are prompted to question whether the stock is significantly overvalued. This analysis delves into the intrinsic valuation of Wingstop, encouraging readers to explore the nuances of its financial standing and market positioning.
Company Overview
Founded in 1994 in Garland, Texas, Wingstop has evolved into a major player in the restaurant industry, specializing in bone-in and boneless chicken wings, tenders, fries, and recently, chicken sandwiches. With over 2,200 stores globally, it ranks as the 31st-largest U.S. restaurant brand by system sales. Operating a 98% franchised model, Wingstop primarily earns through franchise royalties and advertising fees, supplemented by a handful of company-owned stores. Currently, Wingstop's market cap stands at $11.10 billion, with a sales revenue of $497.10 million.
Understanding GF Value
The GF Value is a proprietary measure indicating the fair value of a stock, derived from historical trading multiples, an adjustment factor based on past performance, and future business performance estimates. For Wingstop, the GF Value stands at $264.93, suggesting that the current price of $378.75 significantly overshoots its intrinsic value. This discrepancy indicates that Wingstop is potentially overvalued, which could lead to poorer future returns compared to its business growth.
Financial Strength and Stability
Assessing financial strength is crucial to avoid the risk of permanent capital loss. Wingstop's cash-to-debt ratio stands at 0.15, ranking below 70.18% of its industry peers. The overall financial strength rating of 5 out of 10 suggests that Wingstop has a fair level of financial health.
Profitability and Growth Prospects
Wingstop has shown remarkable profitability, with an operating margin of 26.09%, which is superior to 95.98% of its competitors. The company has maintained profitability over the past decade, with revenues reaching $497.10 million over the last 12 months. Furthermore, Wingstop's average annual revenue growth rate of 22.7% is commendable, positioning it well above 85.29% of the companies in the restaurant industry.
Return on Invested Capital Versus Cost of Capital
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) provides insight into financial efficiency. Wingstop's ROIC is 34.39, significantly higher than its WACC of 14.97, indicating efficient management of capital relative to the cost of funding.
Conclusion
Despite Wingstop's strong profitability and growth, its current market price far exceeds its calculated GF Value, suggesting that it is significantly overvalued. Potential investors should consider this valuation discrepancy before making investment decisions. For a deeper understanding of Wingstop's financials, visit the 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
