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Family-sized orders of chicken wings have helped propel Wingstop's growth. Photo: Wingstop.

On the surface, it's tempting to default to comparing chicken-wings joint Wingstop (NASDAQ:WING) to Buffalo Wild Wings (NASDAQ:BWLD). I mean, both are restaurant chains that sell chicken wings, right?

But that's about as far as the similarities go. B-Dubs is really a sports bar that features chicken wings as its center-of-the-plate specialty, while Wingstop is more of a Five Guys burger-shop-type chicken joint that operates on a "wings, fries, sides, repeat" business model. Other than a common menu item, Buffalo Wild Wings is really a different restaurant than Wingstop.

Choice of a new generation
Instead, it might be more appropriate to compare Wingstop to Chipotle Mexican Grill (NYSE:CMG). Both cater to the so-called millennial consumer, that important population demographic that came of age around the turn of the century. At 80-million strong, it accounts for about a quarter of the entire U.S. population, and represents some $200 billion in annual spending power.

However, there are only a few degrees of separation between the three stocks, and the trio has a combined average loss this past quarter of around 20% as each of their earnings potential suddenly flew the coop. But with each stock so depressed, are any of them worth investing in at these levels?

Ruffling feathers
Wingstop went public in February, and has experienced the typical volatility associated with newly IPO'd stocks, but it's also had to contend with higher-than-normal commodity costs in its central ingredient, chicken wings. Its stock may be above the IPO price of $19 a share, but it's lost more than half its value after peaking at $36 a share.

Like Buffalo Wild Wings, Wingstop has suffered as the per-pound cost of wings has remained at elevated levels. In its just-reported third-quarter financials, B-Dubs said they remained unexpectedly high at around $1.79, a 19% increase above last year's per-pound price, though steady from the prior quarter.

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Buffalo Wild Wings has sought to differentiate itself with its so-called "stadia" design that appeals to the sports-bar crowd. Photo: Buffalo Wild Wings.

Pricing pressure is also not going to be alleviated any time soon. Football season is in full swing, and wing prices typically rise now. While that's going to crimp Wingstop's profits even if it raises prices, Buffalo Wild Wings is able to offset that by drawing in more customers with its sports-bar environment profiting from the higher traffic.

In Wingstop's favor, its stores are smaller in size, and so are less expensive to operate, a factor that's counted toward its increased profitability. It's also able to serve more customers, as 75% of its sales come from takeout, whereas only 15% of B-Dubs sales are takeout.

Where's the beef?
Chipotle Mexican Grill has had to deal with higher costs, as well, as beef prices have been in record territory for more than a year, and have only just recently declined. However, the Tex-Mex chain also faced higher avocado costs and cheese-price inflation, as well. Food-cost inflation is an issue affecting restaurants of all stripes, regardless of whether they're fast food, fast casual, or family dining, and now Chipotle has a bit of a PR problem on its hands with an E. coli outbreak in the Pacific northwest.

Company

Revenues

Gross Margins

Operating Margins

Net Margins

Buffalo Wild Wings

$1.73 billion

23%

7.6%

5.2%

Wingstop

$73 million

70.5%

20.6%

9.1%

Chipotle Mexican Grill

$4.57 billion

27.6%

18.5%

11.6%

All values other than price are TTM. Source: Morningstar.

Still, it's clear that Chipotle Mexican Grill has proven effective at consistently turning revenues into profits; but it's facing a number of challenges that could prove difficult to overcome in the immediate future, and its stock has fallen 20% from recent highs.

As Chipotle's success has broadened, the allure of fast-casual dining has expanded so that consumers now can pay up for better burgers, better Mediterranean food, and even better pizza. Chipotle's even gotten into the fast-casual pizza fad with an investment in Pizzeria Locale (it also operates 11 fast-casual Asian restaurants).

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Food with integrity has long been one of Chipotle Mexican Grill's strongest selling points, but the message risks being diluted. 

That could be a problem as it gets away from its core business, and is one we see Buffalo Wild Wings engaging in, as well. It now operates several fast-casual pizzerias and taco joints, and though both restaurant operators look at their investments as diversifying their revenue streams, it can just as easily be seen as a Peter Lynch-type of "deworsification."

A laser-like focus
Only Wingstop at the moment hasn't lost the focus of what it's trying to accomplish. By keeping a single-minded purpose on low-cost and affordable fare, it may be the one investment worth making, regardless of the vagaries of stock-price fluctuations or chicken-wing prices.

Wingstop's smaller footprint also insulates it from the costs imposed by wage inflation, a factor Buffalo Wild Wings notes will impact results going forward. When it comes to making a bet on which concept might be the one to flock to, the chicken-wing pure play looks like it could rule the roost.

Rich Duprey has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Buffalo Wild Wings and Chipotle Mexican Grill. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.