It might not be obvious to the casual observer, but right now, today, Buffalo Wild Wings (NASDAQ:BWLD) stock offers one of the best values available in the "fast casual" restaurant market. Why?
Buffalo Wild Wings has the best record around...
Over the past five years, Buffalo Wild Wings stock has outperformed pretty much any other "fast casual" restaurant rival you can name. Over the past five years, it's grown its annual sales 14% faster than its closest rival, notching 23.3% annualized sales growth to Chipotle Mexican Grill's (NYSE:CMG) 20.5%. And Buffalo Wild Wings has outperformed Panera Bread's (NASDAQ:PNRA.DL) 13.3% pace of sales growth by an even wider margin.
Buffalo Wild Wings' profits are none too shabby, either, with net income growing at about 26% annually over the past five years.
... and pretty great prospects, too
As good as its performance looks in the rearview mirror, Buffalo Wild Wings stock looks even better through the windshield. According to Yahoo! Finance data, analysts who follow the stock expect Buffalo Wild Wings to grow its earnings at about 20% annually over the next five years. That's compared to:
- An average five-year growth rate of 14.7% for all stocks residing within the "specialty eateries" industry,
- 14.4% growth at Panera, and
- A 23.6% growth rate at Chipotle.
Buffalo Wild Wings is cheap
Now, you'll no doubt notice that earnings are actually projected to grow a bit faster at Chipotle than at Buffalo Wild Wings. Yet even so, Buffalo Wild's cheaper valuation makes it the best bargain. Here's why:
When you divide Buffalo Wild Wings' 26x earnings price-to-earnings ratio by its 20% projected earnings growth rate, the result is a "PEG ratio" of just 1.3. That's compared to the much more expensive 2.4x PEG ratio on a share of Chipotle Mexican Grill (which sells for 57 times earnings). It's also cheaper than the valuation at Panera, which costs "only" 24 times earnings -- but thanks to its subpar growth rate, sports a more expensive PEG ratio of 1.6.
Source: Author calculations.
Buffalo Wild Wings knows the value of a dollar
Most importantly for investors, when it comes to converting "sales" and "GAAP profits" into cold, hard, cash, Buffalo Wild Wings does a bang-up job -- and shows the strongest growth trend of any of these companies.
Measured by dividing a firm's market capitalization (the price you pay for Buffalo Wild Wings stock) into its free cash flow (the money your investment generates for you), the "free cash flow yield" at Buffalo Wild Wings is a strong 3.05% today. Simply put, for every dollar you invest in a share of Buffalo Wild Wings stock, you can expect the firm to generate about three cents worth of real, cash profits.
Now, as the chart below shows, that's a bit behind the 3.32% FCF yield at Panera. But it's much stronger than the 1.96% FCF yield at Chipotle. Importantly, these yields have more or less plateaued at Buffalo Wild Wings' rivals over the past four years. But at Buffalo Wild Wings, they're strongly on the upswing -- and poised to take the lead...
Buffalo Wild Wings may ultimately use this growing stream of cash to initiate a dividend for shareholders, to buy back shares (increasing the size of your stake in the company for every share it takes off the table), or to reinvest in its business. Whichever use it puts the cash to, the simple fact that it's churning out more and more cash with each passing year is already good news for investors.
And it's a great reason to buy Buffalo Wild Wings stock.
Rich Smith has no position in any stocks mentioned. The Motley Fool recommends Buffalo Wild Wings, Chipotle Mexican Grill, and Panera Bread. The Motley Fool owns shares of Buffalo Wild Wings, Chipotle Mexican Grill, and Panera Bread. 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.