Wingstop has all the ingredients to thrive
Shares have soared 70% in three months … but will the rally last?
Market participants don’t talk about Wingstop enough.
I can’t remember the last time I saw an interview with the CEO, who I dare you to name without looking it up. You’d think it was Rick Ross based on how frequently the chicken wing chain uses the man in its commercials. Unfortunately, Ross, also known as Da Boss, is not running the show at Wingstop. It’s a guy named Michael J. Skipworth … and he’s doing an incredible job.
Shares of Wingstop (WING) are up more than 20% in the last week and over 70% in the last three months … there’s your proof. To give you an idea just how violent the recent move has been to the upside, Wingstop, despite the run, is still down some 20% for the year.
Wingstop looked like another high-growth, high- to no-multiple stock the market was going to absolutely bury as the three-headed monster of negative sentiment — the war in Ukraine, the FED’s war on inflation and recession fears — seemingly took away any incentive investors had to buy. The risk-reward dynamic just didn’t offer enough reward.
At least, that’s what conventional wisdom would tell you. Fast forward through the first half of 2022, though, and Wingstop is on fire. The only question now, is why?
What’s driving shares of Wingstop?
During the pandemic, Wingstop showed off one of its superpowers: resiliency. Remember the great American chicken wing shortage of 2021? You’d think something like that would be absolutely devastating to a company that, well, sells chicken wings as its primary source of revenue.
Turns out, it didn’t phase Wingstop at all. While wings got harder and harder for people to track down, Wingstop pivoted to selling chicken thighs instead. It opened an online-only restaurant for ordering purposes and struck a deal with DoorDash for delivery.
It obviously didn’t completely replace the void left by the impossible-to-find wings, but investors took it as a sign Wingstop had what it took to get through hard times. Resiliency, or the ability to recover quickly from challenges, kept the stock afloat during an extremely difficult couple of years for the restaurant industry. Keep in mind pandemic restrictions prevented most places from staying open at all during long stretches of time. Once they could open, many were forced to only offer a takeout option.
Wingstop plummeted as the rising-rate environment sent high-multiple stocks spiraling. Its share price fell from $172 at the start of 2022 to $73 by mid-May.
Since then, though, it’s been an almost straight shot up and to the right.
Here are 2 key things Wingstop has going for it
Market participants are sending Wingstop shares soaring while some of its peers, stocks like Shake Shack, are struggling to get much traction as restaurants continue to work through supply-chain issues, inflationary pressures and recession fears. Here are two significant reasons why:
Wingstop has a very high multiple (over 100), but investors are willing to pay a premium because signs are telling us the services economy is coming back. The Institute for Supply Management’s (ISM) Services Index, a key indicator for Wingstop and pretty much every other restaurant chain in this country was at 56.9% in August. It was the index’s second straight month of growth and the highest level clocked since April. It topped analysts’ expectations of 55.4%, meaning the services economy is growing. That should correlate to more income for Wingstop, which announced revenue of $83.78 million in the most recent quarter, up 13.21% year-over-year. It also added Uber as a partner, ending its exclusive deal with DoorDash. Last time I checked, two delivery services are better than one.
The second thing Wingstop has going for it is the return of college and pro football. Seriously. That, and an updated menu conveniently coinciding with the start of the season. The new Mango Habanero Chicken Sandwich, one of the new additions, seems to be a huge hit as more than a million were sold in the first six days. That’s a lot of chicken sandwiches — so many that Wingstop sold out of its entire supply, four weeks’ worth, at its 1,600+ U.S. locations in just days. It was, seemingly, the perfect launch at the perfect time. Its viral marketing campaign was trending on Twitter, and all 100 free sandwich codes Wingstop planned to give away were claimed in under a day. Not only that, the first day after the sandwich launched, Wingstop posted one of its highest single transaction days ever recorded, with average transactions beating out another monster day — Super Bowl Sunday.
Can Wingstop maintain the momentum?
As bad as conditions were for companies like Wingstop during the darkest days of the pandemic, the future environment, while not a winning one for every company, may be just about perfect.
Pandemic restrictions don’t seem to be a threat anymore. That alone will help Wingstop reach more customers as, not only will it be open, people are increasingly much more open to going out. Wingstop worked hard to streamline a way for stuck-at-home consumers to access its food during the pandemic. Now, consumers can come to the restaurant, too.
It also sells the type of item, low-cost food people clearly crave, recession or not.
Disclaimer: I’m a market participant, not an analyst. This is not financial advice.
