Shares of quickly growing chicken wing franchisor Wingstop (WING 3.80%) were down by 19% as of 1:50 p.m. ET Thursday, according to data provided by S&P Global Market Intelligence.
Despite the company reporting otherwise stellar earnings on Wednesday, Wingstop's shares have declined this week as its sales didn't meet analysts' lofty expectations.
Wingstop's good earnings versus analysts' great expectations
During the fourth quarter, Wingstop grew revenue by 28%, domestic same-store sales by 10%, and net income by 42%. In a vacuum, these would typically be incredible results.
However, thanks to the company's lofty valuation and analysts' high hopes, Wingstop was thoroughly punished for missing sales expectations by $3 million in Q4. In other words, Wingstop's market cap dropped by nearly $2 billion because it delivered revenue growth of $162 million instead of analysts' expectations of $165 million.
I don't point this out as a critique of the market. Instead, I highlight it to show that it is not uncommon for a stock's underlying operations to be fantastic, yet its share price can move in the opposite direction for shorter-term "misses."
If we zoom out and look at Wingstop's 2024, the company:
- delivered same-store sales growth for the 21st consecutive year
- grew its store count by 15%
- increased its digital sales mix to 70% of total systemwide revenue
- raised its dividend 23%
- lowered its share count by nearly 1%
- expanded its digital database to over 50 million customers
- announced it has 2,000 restaurant commitments in its pipeline, compared to its current store count of 2,563
Simply put, Wingstop remains a cash-generating machine that is right in the middle of its growth story. Now trading at 39 times cash from operations -- well below its 10-year average of 62 -- Wingstop remains one of my favorite growth stocks right now.
