Wingstop Stock's Valuation May Have Flown Too High

WING is trading up 49% from its two-year low

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Wingstop Inc. (NASDAQ:WING) is an American chain of chicken wing restaurants. WING operates and franchises over 1,600 locations worldwide. Wingstop offer classic wings, boneless wings, and tenders in 11 different flavors. At last check WING is up 1% at $162.13.

On the earnings front, Wingstop has outperformed earnings expectations on two of its last four earnings reports. For Q3 of 2020, WING met analysts’ estimates, reporting an EPS of $0.34. For Q4 of 2020, Wingstop's EPS decreased to -$0.22, missing expectations by a margin of $0.45. For Q1 of 2021, WING posted an increase in earnings, rising to $0.44 per share. The restaurant chain also beat estimates by a margin of $0.13. Most recently, for Q2 of 2021, Wingstop reported an EPS of $0.38 and beat expectations by a margin of $0.05. Analysts have the company’s EPS coming in at $0.35 for the Q3 of 2021 earnings report.

Wingstop stock has increased about 27% year-over-year and has added 49% since bottoming at a more than two-year low of $108.23 in November. Additionally, shares of WING have grown 22% year-to-date but Wingstop stock is down 13% from its September all-time high of $187.35. Moreover, the chicken wing company offers a forward dividend of $0.68 and a dividend yield of 0.41%.

From a fundamental point of view, Wingstop stock has outpaced the company’s bottom-line growth. As a result, WING currently trades at an insanely high price-earnings ratio of 176.52. Nonetheless, WING still has long-term potential considering the company’s strong revenue growth.

Wingstop stock also has a forward price-earnings ratio of 89.29, which promises continued improvements on the top- and bottom-line. Overall, WING doesn’t offer much for short-term investors at its current valuation but Wingstop stock remains one of the most intriguing growth stocks in the restaurant industry.

It's worth noting that short interest has dropped 6.7% during the past two reporting periods, but still accounts for 6.6% of the stock's available float. At WING's average pace of daily trading, it would take nearly seven days for shorts to buy back their bearish bets.

The equity also looks ripe for downgrades. This is per the 11 of 18 covering brokerage firms that sport a "buy" or "strong buy" recommendation on Wingstop stock.

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