The wings-purveyor's stock has already reached a fevered pitch, up a lip-smacking 120% over the last five years alone -- and this is despite a recent post-earnings setback. The broader market measured by the Dow Jones Industrial Average only recently ticked into positive territory for the same time period.
To see how Buffalo Wild Wings has accomplished this and whether its stock is still a buy, let's see how the popular happy-hour haunt performs relative to its competitors.
Buffalo Wild Wings
Industry Rank (out of 30)**
|Market Cap||$1.35 billion||$1.2 billion*||13|
|5-Year EBITDA Growth (CAGR)||27%||5%||2|
|Same-Store Sales Growth (MRQ)||5.4%||3%||9|
|5-Year Revenue Growth (CAGR)||24%||7%||1|
|Cash & Equivalents (includes marketable securities)||$76 million||$50 million*||10|
Sources: Yahoo! Finance, Finviz.com, Screener.co, and Buffalo Wild Wings' Q2 2012 earnings release. EBITDA = earnings before interest, taxes, depreciation, and amortization. CAGR = compound annual growth rate. MRQ = most recent quarter. *Median substituted for average. **A number of industry participants were excluded from the group to achieve a more representative sample.
As you can see, Buffalo Wild Wings ranks in the top half of every category and at the very top in revenue and earnings growth as well as debt.
Its five-year annualized revenue growth of 24% places it first among impressive competitors such as Panera Bread (Nasdaq: PNRA ) and its strong 17% growth. Buffalo Wild Wing's five-year annualized earnings growth comes in at a staggering 28%, second behind only Chipotle Mexican Grill (NYSE: CMG ) , which recorded a 35% figure for the same time period.
The chain's Achilles' heel in this regard appears to be same-store sales, or "comps." Despite its first-place finish in revenue growth, the average annual sales increase at locations open at least one year was a comparatively modest 5.4%. This compares to an industry average of 3% and trails far behind Acros Dorados (NYSE: ARCO ) , Latin America's largest McDonald's franchisee, which recorded second-quarter comps of 11.6%, and Yum! Brands (NYSE: YUM ) , which recorded 10% comps at its KFC and Pizza Hut locations in China, its most important market.
An additional issue that arose in the second quarter -- and caused the chain's stock to get pounded like a second-string quarterback -- is its vulnerability to rising commodity prices. The price of wholesale chicken wings for the quarter was $1.90, an increase of 86% over the same period in 2011. This helps to explain its subpar performance in terms of net profit margin.
Beyond these issues, however, Buffalo Wild Wings has an extremely impressive balance sheet, with $76 million in cash (including marketable securities) and no debt. This allocation meets the coveted standard for a "Rule Maker" laid out in The Motley Fool Investment Guide, which requires "cash no less than 1.5 times total debt." It also blows away a handful of restaurant chains new to the public market.
Over the weekend, my colleague Sean Williams noted the abominable balance sheet of Bloomin' Brands, the owner and operator of Outback Steakhouse, which debuted with a host of other IPOs, sporting a hefty $2.1 billion in debt versus a comparatively modest $482 million in cash. And earlier this week, I noted the same issue with Chuy's Holdings, the owner and operator of the eponymously named Mexican eatery, which boasts $82 million in debt compared to $26 million in cash.
All things considered
Buffalo Wild Wings has proven itself a worthy competitor to the likes of Chipotle and Panera. If you're thinking about buying its stock, be aware of its challenges: to figure out how to spur same-store sales and continue growing domestically and internationally without letting its standards slide.
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