Wingstop's (NASDAQ:WING) stock has more than quadrupled since its IPO in 2015 as the chicken wing chain has repeatedly impressed investors with its consistent same-store sales growth, aggressive expansion plans, and expanding margins. It's also benefited from low market prices for chicken wings.

Shares surged to an all-time high of $107 in late August, but the stock subsequently shed about a fifth of its value due to market jitters and concerns about a slowdown in the U.S. restaurant market.

Chicken wings with celery sticks.

Image source: Getty Images.

Nonetheless, investors are still willing to pay a steep premium for Wingstop, which trades at nearly 110 times forward earnings, even after its recent pullback. Let's dig deeper Wingstop's business to see it it can justify that lofty valuation.

How Wingstop caught fire

Wingstop ended last quarter with 1,303 system-wide restaurants, up 10% from a year earlier. Wingstop only owns and operates 29 of those locations, which keeps its overhead costs low.

The rest of its locations are operated by franchisees, which pay Wingstop fees and royalties. Its number of domestic franchise locations increased 10% annually to 1,139 last quarter, while its international franchise store count rose 11% to 135.

That aggressive expansion enables Wingstop to consistently generate double-digit sales growth. Its same-store sales growth also accelerated significantly in the first half of 2019, indicating that its expansion was generating sustainable returns:

YOY growth

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Q2 2019

System-wide sales

13.5%

15.1%

15.0%

15.8%

21.9%

Domestic same-store sales

4.3%

6.3%

6.0%

7.1%

12.8%

YOY = Year-over-year. Source: Wingstop quarterly reports.

For the full year, Wingstop expects its domestic same-store sales to rise by the high single-digits, and for its system-wide store count to increase 11%. Over the long term, it believes that its store count could eventually top 2,500 locations.

However, one of Wingstop's tailwinds -- low bone-in chicken wing prices -- faded over the past year. For company-owned locations, its cost of sales rose to 76.1% of its top line during the second quarter, up from 67.5% a year ago, mostly due to a 32.1% increase in the cost of bone-in chicken wings.

A bowl of chicken wings with ranch dressing and vegetable sticks.

Image source: Getty Images.

Other factors included higher labor costs and delivery fees from its partner DoorDash, which boosted Wingstop's digital orders to 34.5% of its sales during the quarter. Wingstop is trying to offset those higher expenses by cutting costs elsewhere, but its adjusted EBITDA growth notably decelerated in the first half of the year:

YOY growth

Q2 2018

Q3 2018

Q4 2018

Q1 2019

Q2 2019

Adjusted EBITDA

27.1%

23.3%

20.3%

11.2%

15.3%

YOY = Year-over-year. Source: Wingstop quarterly reports.

Wingstop's reported earnings growth, which includes stock-based compensation expenses and other charges, looks even weaker. It expects its GAAP earnings for the year to come in between $0.72 to $0.74 per share -- which would be roughly flat from 2018.

A strong business with a flimsy stock

The massive gap between Wingstop's earnings growth and its forward P/E in the low triple digits raises red flags about the chicken wing chain's future.

By comparison, McDonald's earnings are only expected to rise 1% this year and 8% next year, but its stock trades at a more reasonable 24 times forward earnings. Yum! Brands, which trades at 26 times forward earnings, is expected to post 22% earnings growth this year, followed by 10% growth next year.

The bulls might argue that it's more accurate to value Wingstop by its impressive revenue growth, but that metric is also overheated. Wingstop currently trades at 14 times trailing 12-month sales. Shake Shack, which is expected to generate 31% revenue growth this year, trades at less than five times sales.

Those comparisons indicate that Wingstop's stock is too expensive relative to its growth potential. Its paltry dividend yield of 0.5% won't lock in any serious income investors. Therefore, anyone who wants a piece of this hot restaurant should wait for a meaningful pullback -- which might occur after its third-quarter earnings report on Oct. 30 -- to accumulate some shares.