Is Buffalo Wild Wings the Perfect Stock?

Every investor would love to stumble upon the perfect stock. But will you ever really find a stock that provides everything you could possibly want?

One thing's for sure: You'll never discover truly great investments unless you actively look for them. Let's discuss the ideal qualities of a perfect stock, then decide if Buffalo Wild Wings (Nasdaq: BWLD  ) fits the bill.

The quest for perfection
Stocks that look great based on one factor may prove horrible elsewhere, making due diligence a crucial part of your investing research. The best stocks excel in many different areas, including these important factors:

  • Growth. Expanding businesses show healthy revenue growth. While past growth is no guarantee that revenue will keep rising, it's certainly a better sign than a stagnant top line.
  • Margins. Higher sales mean nothing if a company can't produce profits from them. Strong margins ensure that company can turn revenue into profit.
  • Balance sheet. At debt-laden companies, banks and bondholders compete with shareholders for management's attention. Companies with strong balance sheets don't have to worry about the distraction of debt.
  • Money-making opportunities. Return on equity helps measure how well a company is finding opportunities to turn its resources into profitable business endeavors.
  • Valuation. You can't afford to pay too much for even the best companies. By using normalized figures, you can see how a stock's simple earnings multiple fits into a longer-term context.
  • Dividends. For tangible proof of profits, a check to shareholders every three months can't be beat. Companies with solid dividends and strong commitments to increasing payouts treat shareholders well.

With those factors in mind, let's take a closer look at Buffalo Wild Wings.

Factor

What We Want to See

Actual

Pass or Fail?

Growth 5-Year Annual Revenue Growth > 15% 23.6% Pass
  1-Year Revenue Growth > 12% 14.9% Pass
Margins Gross Margin > 35% 26.9% Fail
  Net Margin > 15% 6.6% Fail
Balance Sheet Debt to Equity < 50% 0.0% Pass
  Current Ratio > 1.3 1.71 Pass
Opportunities Return on Equity > 15% 17.3% Pass
Valuation Normalized P/E < 20 25.42 Fail
Dividends Current Yield > 2% 0.0% Fail
  5-Year Dividend Growth > 10% 0.0% Fail
       
  Total Score   5 out of 10

Source: Capital IQ, a division of Standard and Poor's. Total score = number of passes.

Buffalo Wild Wings serves up a mildly spicy score of 5. The restaurant purveyor has had to deal with a challenging industry environment, but it has some things going for it that have hurt most other food companies.

Across the industry, companies that deal in food have seen an alarming trend: higher prices for raw ingredients they need to prepare meals for customers. Whether it's high-end companies like Ruth's Hospitality (Nasdaq: RUTH  ) or low-cost McDonald's (NYSE: MCD  ) , restaurants that offer beef have seen higher prices. Similarly, pizza companies Domino's (NYSE: DPZ  ) and Papa John's (Nasdaq: PZZA  ) have faced high costs for cheese.

But Buffalo Wild Wings has an interesting dynamic in that regard. It relies mostly on chicken, whose prices have fallen recently. And despite the company's fairly high multiple, it also has higher growth rate estimates than peers like Ruby Tuesday (NYSE: RT  ) and California Pizza Kitchen (Nasdaq: CPKI  ) .

At some point, the economy has to turn stronger, and when it does, consumers will start eating out again. In turn, Buffalo Wild Wings should be in a strong position to capitalize when that happens. Even with the specter of the NFL lockout potentially reducing demand, Buffalo Wild Wings has shown in the past just how well it can do even in tough environments.

Keep searching
No stock is a sure thing, but some stocks are a lot closer to perfect than others. By looking for the perfect stock, you'll go a long way toward improving your investing prowess and learning how to separate out the best investments from the rest.

Click here to add Buffalo Wild Wings to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.

Finding the perfect stock is only one piece of a successful investment strategy. Get the big picture by taking a look at our 13 Steps to Investing Foolishly.

Fool contributor Dan Caplinger doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Domino's and Papa John's and has written puts on Papa John's. Motley Fool newsletter services have recommended buying shares of Buffalo Wild Wings and McDonald's. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1506408, ~/Articles/ArticleHandler.aspx, 12/22/2014 1:37:37 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement