Wingstop (NASDAQ:WING) has quietly been one of the best-performing stocks on the market since its initial public offering in 2015. In fact, the chicken-wing restaurant has posted an average annualized return of 31.9% since its June 2015 IPO. Over the last five years as of Feb. 22, it has had an average annualized return of 38.3%.
You can put those returns up against almost any other stock over that stretch, even the Magnificent Seven, as only NVIDIA (NASDAQ:NVDA) and Tesla (NASDAQ:TSLA) have performed better over the past five years.
Last year, Wingstop stock returned 87%, and even in 2022, it beat the S&P 500, posting a return of -17%. Now in 2024, Wingstop continues to shine, up roughly 35% year to date, including an 8% jump on Thursday — one day after posting strong fourth-quarter earnings results that beat estimates.
Where does Wingstop go from here? Can investors still expect that kind of outperformance?
Strongest year on record for Wingstop
Wingstop had another strong performance in the fourth quarter as its revenue increased 21% year over year in the quarter to $127 million. The company’s revenue includes royalties and fees from franchisees, company-owned restaurant sales, and advertising fees. Overall, Wingstop’s net income climbed 7% to $19 million in the quarter, or 64 cents per share.
The company’s broader system-wide sales jumped 24.5% in Q4 to $966 million, and that includes net sales for all of its company-owned and franchised restaurants. Franchisees account for 98%, or 1,877, of Wingstop’s 2,214 total restaurants, 1,926 of which are in the U.S.
The company’s system-wide sales growth allows its management to gauge its royalty revenue, same-store performance, the health of its brand, and its competitive standing in the market. System-wide sales growth is typically fueled by restaurant openings and increases in same-store sales. In the fourth quarter, Wingstop had 115 net new openings, and its same-store sales rose 21%.
For the full fiscal year, Wingstop’s revenue rose 29% to $460 million, with system-wide sales up 27% to $3.5 billion. Net income spiked 32% to $70 million, or $2.35 per diluted share. The chain had 255 net new openings for the year, up 13%, and an 18% increase in domestic same-store sales.
Michael Skipworth, president and CEO of Wingstop, said, “2023 marked the strongest year on record for Wingstop, where we achieved 18.3% domestic same-store sales growth, driven primarily by transactions, and we delivered an unprecedented 20 consecutive years of domestic same-store sales growth.”
One warning sign
Wingstop’s stock price initially sank about 4.6% on Wednesday after its earnings were released, probably on the outlook, which may have disappointed some investors. In its 2024 outlook, Wingstop called for 270 more new stores and mid-single-digit domestic same-store growth. The latter would be lower than the 18% same-store sales growth in 2023. The company also expects selling, general and administrative costs to be $108 million for the year, up from $96.9 million last year.
On the earnings call, Chief Financial Officer Alex Kaleida said they’re targeting adjusted EBITDA growth of 15% in 2024, which would be lower than the 39% growth recorded in 2023.
However, perhaps correcting an overreaction to a solid report, Wingstop stock jumped 8% on Thursday to $335 per share, hitting an all-time high of $340 during the trading session.
The projected slower growth is not a big concern, but Wingstop’s valuation is something to watch. The rocket ship it has been on has left it with an extremely high valuation. Its price-to-earnings (P/E) ratio is 132, and its forward P/E is 108. It is a good company with a lot going for it, but I’d be hesitant to add it right now because of its high valuation, especially after this recent spike.
Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.
