The recent stock market correction has not lasted long, but several growth stocks have significantly decreased from their highs, including Wingstop. The shares of this fast-food chain have fallen by 52% from their peak last fall. This decline is attributed to investors’ concerns over weakening consumer sentiment, unsatisfactory guidance for 2025, and missed revenue expectations in the fourth quarter earnings report. Additionally, a high valuation accelerated the sell-off, as the stock was priced for perfection six months prior.
Despite the price drop, Wingstop presents a potentially attractive buying opportunity for several reasons.
Impressive Growth Record: In the restaurant industry, successful companies tend to maintain their success, and Wingstop exemplifies this pattern. As the nation’s largest fast-food wing concept, the company thrives by opening locations in B-level real estate, minimizing costs for franchisees, and leveraging digital and delivery channels. Wingstop has achieved 20 consecutive years of same-store sales growth, including during the financial crisis and the pandemic, a streak virtually unmatched in the industry. Notably, the fourth quarter saw a 10.1% domestic same-store sales growth and a 19.9% growth rate for the year, following an 18.3% increase in 2023, resulting in a two-year competitive growth rate of over 40%. This growth underscores the brand’s strong resonance with its customers, as the chain expands its same-store sales while rapidly opening new locations without affecting existing ones.
Conservative 2025 Guidance: Wingstop’s stock fell by 13% on February 20 and continued to decline as it missed revenue expectations in its fourth-quarter earnings report and issued disappointing 2025 guidance. Management forecasted low-to-mid-single-digit same-store sales growth for 2025, a significant slowdown from the 19.9% in 2024 or the 10.1% growth seen in the fourth quarter. This guidance reflects the challenge of lapping very strong growth in 2024, including 20% growth in the first quarter of that year. However, it is common for companies to initially present conservative full-year guidance, and Wingstop has a history of doing so as well. For instance, in the fourth quarter of 2023, the company projected mid-single-digit comparable-sales growth, yet achieved 20% growth. While this does not guarantee Wingstop will surpass its guidance again, the forecast alone is not a reason to doubt their potential.
- Long-term Growth Potential: Wingstop is experiencing rapid expansion in both domestic and international markets. Its franchise model enables swift store openings in new markets and small-footprint locations that other chains might overlook. In 2024, Wingstop opened 349 net new restaurants, bringing the total to 2,563 locations, and it anticipates a 14%-15% increase in its base in 2025. This suggests that even if same-store sales growth remains modest, the company can still achieve growth through new store openings. Currently, Wingstop has a limited international presence, and it aims to expand as successful fast-food chicken brands like KFC have done. The company targets 7,000 global locations, which is approximately triple its current count, and this target could increase if robust same-store sales persist and franchisee demand remains strong.
A Viable Buying Opportunity: After the recent pullback, Wingstop’s valuation appears more reasonable, trading at a price-to-earnings ratio of 56. This valuation seems justifiable given the company’s growth potential. While market challenges may continue into 2025, Wingstop could experience significant gains if it exceeds its same-store sales guidance. In the long term, both as a business and a stock, the company is well-positioned for market-beating growth.
