Shares of WING will begin to look tasty at this price
Wingstop Inc (NASDAQ:WING) is up 4.4% to trade at $75.58 at last check, after the restaurant chain announced an agreement for development rights in South Korea. The deal outlines a commitment of 60 restaurants in 10 years, with the potential for 200-250 restaurants in total, the first of which is set to open in 2023. Plus, the company will open its first 100 Canadian locations next month, and has expanded its deal with Indonesia from 50 to 120 restaurants. Wingstop added it now expects to have more than 7,000 restaurants across the globe.
Analysts are not convinced, however. The equity attracted two price-target cuts earlier, from Cowen and Company and RBC to $100 and $98, respectively. Short sellers have also placed their bets, with the 2.94 million shares sold short now making up 9.9% of WING's available float.
It has been a difficult year for Wingstop stock thus far, with the 20-day moving average guiding the shares lower since late February, culminating in a May 18, two-year low of $71.64. Plus, a celling seems to be forming at the $85 area, and the equity carries a 41% year-over-year deficit.
It's also worth noting short-term options traders have been more put-biased than usual. This is per WING's Schaeffer's put/call open interest ratio (SOIR) of 2.09, which stands higher than 99% of readings from the past year.
The stock is valued highly, at a forward price-earnings ratio of 59.64, and a price-sales ratio of 7.55, leaving plenty of downside potential in the short-term. What's more, WING carries $471.83 million in total debt, and only $55.45 million in cash, which is not ideal for a business looking to expand globally. WING also pays a dividend to shareholders, prioritizing investors over the company’s financial stability. More specifically, WING currently pays a forward dividend of $0.68, at a dividend yield of 0.94%.
However, Wingstop’s business model has been very successful, producing consistent and meaningful growth on both the top and bottom lines over multiple years. The chain saw a 13.5% increase in revenues and an 83% rise in net income for 2021. Plus, WING is estimated to generate 23.8% revenue growth, and 14.8% earnings growth for 2022, with 17.7% revenue growth and 21.9% earning growth expected for 2023.
Still, Wingstop stock’s price will need to drop below $50 before its value is fair. A move towards that region would place WING’s valuation metrics at more suitable figures for the level of growth the business is expected to produce.