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Why Wendy's Stock Dropped Today

By Joe Tenebruso - Jun 9, 2021 at 3:34PM

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The restaurant stock may have come too far, too fast.

What happened

Shares of The Wendy's Company (WEN -0.70%) fell on Wednesday, following an analyst downgrade. As of 3 p.m. EDT today, the burger chain's stock price was down more than 12%. 

So what

Stifel (NYSE:SF) analyst Chris O'Cull cut his rating on Wendy's from buy to hold today, a day after the stock surged 26% after it gained the attention of investors in the popular WallStreetBets Reddit Group. 

A person is pointing to stock chart that rises sharply and then falls.

Wendy's stock price pulled back sharply on Wednesday. Image source: Getty Images.

Although O'Cull is bullish on Wendy's business and ability to achieve its financial targets this year, he believes this growth is now already priced into the fast-food restaurant's shares, following its recent rally. He placed a $25 price forecast on Wendy's stock, which is roughly the level the shares fell to on Wednesday. 

Now what

Wendy's isn't your typical meme stock. Unlike WallStreetBets' favorites AMC Entertainment Holdings and GameStop, Wendy's is not heavily shorted, with less than 5% of its float currently held short. It has also performed relatively well from an operational standpoint in recent years, and its stock has outperformed the S&P 500 for much of the past half-decade. 

Moreover, analysts expect Wendy's to grow earnings by an impressive 18.5% annually over the next five years. So while its current valuation may no longer be the bargain it was just a few days ago, the company's long-term future remains bright.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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