Wingstop Earnings: Street Is Not Placated by Eye-Popping Comparable Sales Growth; Shares Still Steep

Narrow-moat Wingstop posted another quarter of exceptional results, growing revenue by 45%, store count by 15%, and adjusted EBITDA by 51% annually. Somewhat befuddlingly, shares fell nearly 3% in intraday trading on July 31, despite the firm beating Street top- and bottom-line expectations for the eighth consecutive quarter and raising its full-year comparable store sales guidance to 20% growth, from a pedestrian low-double-digit rate previously. This is the risk tied to investing in businesses like Wingstop that trade at ethereal valuations, in our view—market expectations appear unmoored from reality, with shares trading at about a 115% premium to our intrinsic valuation even after a planned high-single-digit percentage increase to our $152 fair value estimate. At current pricing, we continue to urge investors to steer clear of the quick-service chicken highflyer in favor of battered names like wide-moat McDonald's and narrow-moat Papa John's, which offer substantially more-attractive risk/return profiles.