Wingstop is grinding through a newly formed five-week flat base. This restaurant stock is today's IBD 50 Stocks to Watch pick and a leader in a top-40 industry group.
The specialized chicken wing restaurant holds second place out of 52 companies in the Retail-Restaurant industry group, which is ranked a strong 39th out of the 197 IBD industry groups. The CAN SLIM investing strategy looks for industries in the top 40 or 50 groups, as part of the screening process to find growth stocks.
The Dallas-based restaurant chain has over 1,900 locations in the U.S. and international markets, according to Dow Jones Newswires. Its international locations include Mexico, Columbia, Panama, Singapore and the U.K. The company added a net 40 stores in the prior quarter.
In 2021, it was ranked first on Technomic 500's "Fastest Growing Franchise" list.
Wingstop's 2020 showdown with top rival, privately-held Buffalo Wild Wings, ended with mixed results. You can be the judge on who's best.
Restaurant Stock Forms Flat Base, Shows Year-End Strength
WING stock formed a flat base after gapping up and breaking out of a consolidating base, in reaction to better-than-expected Q3 EPS and sales numbers in October. The breakout came in heavy volume, showing institutions were heavy buyers of its stock.
However, the restaurant stock has been trading choppy within the base since the big rally day.
The stock is down over 3% today in lighter volume, in overall market weakness. This has triggered a round trip sell signal to its previous buy point of 148.94 of a consolidating base. The decline sinks the stock below its 50-day moving average, a warning sign to keep an eye on.
Despite the recent pullback, Wingstop has a high 96 Relative Strength Rating, meaning it has outperformed 96% of all stocks in the IBD database. It's up over 23% quarter to date, but still off almost 15% year to date.
Will New Southern Flavor Whet Investor Appetites?
Wingstop rolled out its limited edition Carolina Gold BBQ on Dec. 6, based on the South Carolina tangy, mustard-based style barbecue sauce. It also has a special chicken sandwich promotion with Uber, through its Uber Eats delivery service, running through Dec. 19.
According to the National Chicken Council, approximately 1.4 billion chicken wings are consumed on Super Bowl Sunday. It is the number one food eaten at Big Game parties. With more people gathering for events as the pandemic subsides, Wingstop could get an extra boost on the second Sunday in February.
Double-Digit Earnings Growth Expected
Wingstop produced impressive 55% Q3 EPS growth and solid 41% sales growth, reported in the October earnings release. Management raised its full-year 2022 EPS guidance and cut its expense outlook, adding to its bottom line.
Analysts are projecting 22% EPS growth in 2022, with another 18% in 2023. The restaurant chain has a 26% three-year EPS growth rate and an 18% sales growth rate, according to IBD Stock Checkup.
The price of chicken breasts tripled since the beginning of 2021, reaching $3.50 per pound earlier this year, according to market research firm Urner Barry. The price has dropped around 70% since early June, as producers increased production and restaurant demand dropped off. The cost of wings and tenders has also dropped, giving relief to the restaurant and grocery industries.
Wingstop expects chicken prices to continue to drop in 2023, a tailwind to its bottom line.
Mutual funds own a significant 78% of the company's stock, with 576 funds holding shares in the Q3 quarter, up from 552 in June. High institutional ownership, the "I" in CAN SLIM, is another key criteria for outperforming growth stocks.
