Please ensure Javascript is enabled for purposes of website accessibility

Why Wendy's Stock Crashed Today

By Anders Bylund - Apr 2, 2020 at 4:30PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

An experienced short-seller continues to bet against restaurant stocks.

What happened

Shares of fast-food chain Wendy's (WEN 0.61%) fell as much as 8.6% on Thursday even though the market trended upward in general. Noted short-seller Jim Chanos appeared on CNBC in the morning and said that he still expects several food-service stocks (including Wendy's) to continue falling. After mounting a partial recovery, the stock closed Thursday's trading 4.4% lower.

So what

The founder of short-selling investment firm Kynikos Associates appeared on CNBC's Halftime Report, where he said that the firm still is short-selling restaurant stocks such as Wendy's, Burger King parent Restaurant Brands (QSR 0.41%), and Dunkin' Brands (DNKN). Restaurant Brands shares fell as much as 5.4% today, and Dunkin bottomed out at a drop of 8.2%.

Close-up photo of a bear placed in front of a large, red chart trending downward.

Image source: Getty Images.

Now what

Later in the CNBC show, Chanos provided some downright sensible advice to investors in support of his short-selling bets:

What we would really urge investors to do is, look at the business, look at the 2019, and do your research to take an educated guess at what you think this looks like in 2021. And if it's still a cheap stock then, then it might be an attractive investment on the long side. But if it's really, really expensive based on 2019 and 2021, you might want to think twice.

That's excellent advice in any market, and doubly so in times of crisis. Wendy's is trading at 24 times trailing earnings and 20 times next-year estimates. Both of these ratios place it among the 10 richest valuations in the restaurant industry today. Wendy's shareholders might indeed want to think twice about holding the stock.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool recommends Dunkin' Brands Group. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Wendy's Company Stock Quote
The Wendy's Company
$21.29 (0.61%) $0.13
Dunkin' Brands Group, Inc. Stock Quote
Dunkin' Brands Group, Inc.
Restaurant Brands International Inc. Stock Quote
Restaurant Brands International Inc.
$60.78 (0.41%) $0.25

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/16/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.