Buffalo Wild Wings stock

Photo: Mike Mozart/Flickr

If you bought shares of Buffalo Wild Wings (NASDAQ:BWLD) just one month ago, right now you'd be sitting on an quick gain of over 20%. So what happened to the beer, wings, and sports specialist between then and now?

In short, even as a $3 billion restaurant chain operating in the sluggish casual dining industry, Buffalo Wild Wings' sizzling third-quarter results reminded investors it still knows a thing or two about achieving outsized growth.

Quarterly revenue, for one, climbed 18.3% year over year to $373.5 million, helped by not only 91 new locations opened over the past 12 months, but also solid same-store sales growth of 6% and 5.7% at company-owned and franchised locations, respectively. That translated to even more impressive 20% growth in net earnings per diluted share to $1.14. By contrast, Wall Street was expecting B-Dubs to post earnings of just $1.07 per share on roughly the same revenue.

To explain its bottom line outperformance, Buffalo Wild Wings pointed primarily to lower-than-expected chicken wing prices (roughly $1.50 per pound in Q3), as well as customers' willingness to shrug off small menu price increases taken over the past year. In the end, Buffalo Wild Wings stock popped 13% the day after its earnings were released, accounting for more than half this past month's gains. Since then, Buffalo Wild Wings has only continued to drift higher, undoubtedly aided by the broader market's steady rise:

BWLD Chart, Buffalo Wild Wings stock

BWLD data by YCharts

But with shares now trading at a (seemingly) lofty 27 times next year's estimated earnings, should investors be cashing out today? In a word: Nope.

There are short-term risks ...
That doesn't mean we should throw caution to the wind. After all, management subsequently stated wing prices skyrocketed to an average price of $1.88 per share for the first two months of the fourth quarter, and at the start of November sat at roughly $1.98 per pound. What's more, Buffalo Wild Wings is set to absorb other cost increases including the addition of higher-paid "Guest Experience Captains" at company-owned locations, as well as the impending minimum wage increases in several states.

To partially offset those costs, Buffalo Wild Wings announced it will increase menu prices an average of 3% at the end of this month. And though management insists B-Dubs' healthy same-store sales growth and high guest loyalty index means any resulting traffic reductions should be insignificant, investors should keep a close eye on whether hungry diners take kindly to yet another price increase.

... but also massive long-term upside
Even after its recent climb, however, note Buffalo Wild Wings still sits around 3% below the 52-week-high it set just before its strong second quarter results in late-July. At the time, Wall Street reacted negatively to the company's guidance for 2014 earnings growth to exceed 25% and possibly reach 30% -- significantly below expectations for growth of 34%.

But that guidance turned out to be conservative, as Buffalo Wild Wings now expects 2014 earnings to "exceed 28%" despite the aforementioned cost headwinds. Meanwhile, analysts have reined in their own expectations and now see 2014 earnings growth of roughly 30.9%. That's still technically higher than the low end of B-Dubs' own guidance, but a much easier gap for our fickle market to reconcile.

What's more, long-term investors can look forward to rapid growth in Buffalo Wild Wings' restaurant base, which at the end of last quarter sat at 1,040 total locations. Buffalo Wild Wings wants to grow that number to at least 2,100 over the next 10 years, including 1,700 in North America and at least 400 internationally. 

That's also not to mention Buffalo Wild Wings' recent investments in emerging fast-casual concepts. Those currently include only street taco specialist Rusty Taco and craft pizza maker PizzaRev, both of which have potential for nationwide expansion. And according to Buffalo Wild Wings CEO Sally Smith, Buffalo Wild Wings is also considering taking equity stakes in as many as seven more small chains over the next five years. Over the longer-term, this will help Buffalo Wild Wings achieve its goal of becoming a diversified company of 3,000 restaurants worldwide.

In the end, for investors willing to watch patiently as that plan comes to fruition, Buffalo Wild Wings' recent gains will likely pale in comparison to its long-term promise.