Wingstop: A "Great Cookie-Cutter Story"

10/04/2018 5:00 am EST

Focus: CONSUMER

Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

Wingstop (WING) has been one of the more unheralded retail/restaurant winners during the past year, asserts growth stock expert Mike Cintolo, editor of Cabot Top Ten Trader.

More big investors think it has the potential to get much bigger over time; 386 owned shares at the end of up June, up from 313 a year ago.

The story can’t be any simpler — the firm serves (you guessed it) wings made three ways with around a dozen seasoning choices, along with the usual fare (fries, drinks) you’d expect from a wing joint.

The valuation here isn’t for the faint of heart (81 times trailing earnings), but the stock remains strong because management is thinking big — the firm ended Q2 with 1,188 locations (1,066 in the U.S.), up 12.5% from a year ago, with excellent economics (make back about half the initial investment in two years, better than nearly all restaurants).

Meanwhile, management has a vision of being one of the top 10 global restaurant brands with many thousands of locations over time (including more than 1,000 potentially just in the dozen international markets it’s currently in).

As for results, Wingstop has some of the best same-store sales growth in the entire restaurant sector (actually the best growth when looking at the last five years combined; last quarter was north of 4%) and has numerous initiatives just starting to take root (digital sales, national advertising campaigns, delivery). It’s a great cookie-cutter story.

Wingstop originally broke out in November 2017, so it’s not in the first inning of its overall run. But it continues to show few signs of distribution — after a run to $56 in May, the stock consolidated tightly ($48 to $56) for three months before Q2 earnings kicked off a new run that went as far as $71 before seeing some weakness this month. If you want in, look for dips of another point or two and use a stop just below $60.

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