Restaurant chain Wingstop (WING +1.37%) is cheaper than it has been, but it is not a cheap stock. With the Nasdaq Composite (where Wingstop's shares trade) in correction territory, is it now time to buy this still fast-growing restaurant chain? Here's a look at what is a very difficult question to answer.
How expensive is Wingstop?
Wingstop, as its name suggests, specializes in selling chicken wings -- a popular food item. Meanwhile, its shares have had quite a ride. The stock's price-to-earnings ratio is around 57 right now. Given that the S&P 500 index's P/E ratio is only about 27.5, Wingstop looks relatively expensive. However, the stock has fallen by around 50% from its highs in September 2024.
If the stock appears relatively expensive today, it was shockingly expensive at its highs. At that point in time, the P/E ratio was a massive 130 or so. But the P/E was even higher in March of last year, when it was near 150. Compared to those levels, 57 is pretty cheap. And, in fact, if you look back at the P/E range for Wingstop, 57 is actually at the lower end of the stock's historical P/E range.
For more aggressive investors focused on fast-growing companies that could be an indication of a buying opportunity. But there's a little complication here. Since Wingstop's downturn started late in 2024, the Nasdaq Composite has now fallen into its own downturn. That could change the equation with Wingstop.
The lemming effect of a market correction
Investors often move like a herd of wild animals. When things are good, they rush to buy, and when things are bad they rush to sell. With the Nasdaq in a correction (which means it is down 10% or so), investors are getting scared. The next stop could be a bear market (a 20% decline). With investors already selling Wingstop, the heightened negative mood in the market could lead to even more selling.
Wall Street sometimes looks more like lemmings running off of a cliff rather than a well-functioning machine that "efficiently" values every stock properly, as many academics would have you believe.
NASDAQ: WING
Key Data Points
What's interesting with Wingstop stock, which is really only appropriate for higher-risk investors, is that its restaurant business is performing quite well. In 2024, sales rose 36.8%, with same-store sales up an impressive 19.9% in the United States. Those are both very strong numbers, with 349 new store openings driving the top line and strong customer demand driving same-store sales. The company hopes to expand its store base by as much as 15% in 2025, so more growth seems highly likely this year as well.
In other words, it appears like the price drop in Wingstop's shares is related to investor sentiment more than business problems. But even though Wingstop's valuation is back toward the low end of its range, the market mood has clearly shifted in a negative direction. In fact, as the chart below highlights, the restaurant's stock has dropped even more than the Nasdaq over the past month. That's not shocking since the most beloved stocks are often the first to be sold off in a downturn.
The best approach for aggressive growth investors might be a hybrid tactic. If you like the company and believe it will continue to grow its business long into the future, take advantage of the current lower valuation to initiate a starter position. Plan to hold onto that stake for the long term no matter what happens over the near term.
If Wingstop's stock should continue to fall along with the market, meanwhile, use that starter position as the building block for additional purchases, buying more of the restaurant at even lower prices and valuations.
Wingstop is a hard sell for value investors
If you are a value investor, Wingstop's shares will have to drop a lot further for you to be interested. And since the yield is a miserly 0.5%, income investors will mostly pass it by without even looking. But the company is growing its business quickly and that should interest some growth-minded investors.
However, with the Nasdaq falling into correction territory, a more nuanced approach may be needed with Wingstop's shares. They do look attractively valued relative to their own history, but they are still expensive on an absolute basis. And that suggests that buying a little now and more later, if the stock continues to fall, could be the right hybrid approach for aggressive growth investors to take right now.
