Second-quarter results for McDonald's (MCD 1.05%) gave indications that consumers might be tightening their wallets a bit. At a time when things are starting to look a bit weaker for restaurant chains, it behooves investors to stick with the momentum. Right now, that is unquestionably Wingstop (WING +1.37%).
NASDAQ: WING
Key Data Points
Sales comparisons
Perhaps the largest divide between these two companies is their sales growth. McDonald's is seeing a stagnation in sales, while Wingstop has seen very strong growth.
For McDonald's, total comparable-store sales declined 1% in the second quarter. Systemwide sales fell 1%, while consolidated revenue was flat. This follows a trend in which McDonald's comparable sales growth has been declining over the past few quarters.
Wingstop sales could not have been more different. The chicken chain reported a systemwide increase in sales of 45.2% to $1.2 billion, while domestic same-store sales increased 28.7%. Wingstop's total revenue increased 45.3% in the second quarter, in contrast to McDonald's relatively stagnant year-over-year revenue.
McDonald's earnings declined 11% to $2.80 per diluted share, while six-month figures are down 2% to $5.46. In contrast, Wingstop earnings are up roughly 72% year over year to $0.93 per diluted share.
The big picture
Peering into a quarter is one thing, but the broader picture is what really matters. In this case Wingstop is showing much more to be excited about.
McDonald's revenue has been up and down over the past few years, as has its annual net income. In contrast, Wingstop has consistently delivered annual revenue gains in the double digits, finishing 2023 with revenue growth of nearly 29%. With five years of strong revenue growth, it is clear that Wingstop is outperforming McDonald's.
One of the main reasons for this is of course Wingstop's smaller size and youth, but that shouldn't matter to investors. Growth is growth, and Wingstop has continued to produce numbers that are hard to ignore, at a time when others are starting to see weakness.
So what's the catch?
In a word, valuation. Wingstop is trading at over 100x earnings on a trailing basis, while McDonald's trades at around 23x earnings. Now ordinarily I am a value nut, and would never take the bullish train on something like Wingstop versus McDonald's. The thing is, the growth rates here are difficult to ignore when you consider the weakness among its competitors.
The results of a few key players within fast food and restaurants hint that consumers might finally be starting to tighten their pocketbooks. In particular, McDonald's pointed out that consumers are getting a little more critical of prices, which has led to the results we saw last week. Starbucks, Wendy's, and Burger King also all reported weaker than desired traffic, giving another hint that consumers might be tightening spending.
To me, this is a moment where you want to stick to what's working. Simply put, that is Wingstop. I think the high valuation can be justified when you consider how fast it's growing. Since going public in 2015, Wingstop shares have delivered gains of over 1,000%. To me, the decision between the two stocks is easy.
