Is Wendy's Stock's 27% Recovery Justified?

Wendy’s just introduced new food item for its Canadian restaurants

Sep 20, 2022 at 11:49 AM
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On Wendy's Company (NASDAQ:WEN) Sept. 14, Wendy's announced the addition of the new Blazin' Baconator hamburger for a limited time in the Canadian market. This new item comes as part of the company’s Baconic Fall Lineup promotion.

Wendy's stock has lost 16% in the past year, and 8.5% in the past 12 months, with pressure at the  $21.50 level keeping a lid on a recent rally attempt. However, WEN has been able to maintain some of its recovery off its May 11 two-year low of $15.76, adding nearly 27% since then. 

wen sept 20

However, Wendy's stock appears to be overvalued by most metrics. WEN currently trades at a forward price-earnings ratio of 20.24 and a price-sales ratio of 2.22, representing an inflated valuation when considering the company's growth rate.

Wendy’s has generated just 23.9% annual revenue growth and has experienced a 61.1% decline in yearly net income since fiscal 2018. In addition, the fast-food company holds a weak balance sheet with $700.81 million in cash and $4.32 billion in total debt.

Still, WEN is estimated to report 9.9% revenue growth and 3.7% earnings growth for fiscal 2022. The restaurant company is also expected to increase its revenues and earnings 4.6% and 17.6%, respectively, for fiscal 2023. Furthermore, Wendy's stock offers a nice dividend yield of 2.5% at a forward dividend of $0.50, making it WEN's best attribute. However, Wendy’s stock's inflated valuation and inconsistent growth rate continues to represent too much of a liability for fundamental-based investors.

 

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