At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we were doing.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we track the long-term performance of Wall Street's best and brightest -- and its worst and sorriest, too.

And speaking of the worst ...
What do you do when one of the worst analysts in recorded history downgrades one of your absolute favorite stocks? Do you ignore the news? Take it as a "contrarian indicator" and buy more shares? Or do you take advantage of the deep-down detail features built into Motley Fool CAPS and investigate to see if there's more to the story?

I think you can guess which approach I take. So let's apply it to today's downgrade of a Motley Fool Hidden Gems recommendation Buffalo Wild Wings (Nasdaq: BWLD). Early this morning, just days before B-Wild reports its Q1 2010 results, Dougherty & Co. announced that it's downgrading the stock to "neutral" and reducing its target price. Why? No one's quite sure -- not a single major news outlet seems to have any details on why the downgrade happened; just that it happened.

And if that upsets you, I sympathize. There's almost nothing more frustrating for the individual investor than seeing your stock downgraded -- and seeing its stock price trashed -- and not knowing why. But while I cannot tell you the reasoning behind Dougherty's downgrade, I can at least shed a little light on whether you should listen to this analyst's advice.

Let's go to the tape
At first glance, you might not think there's much reason to listen to Dougherty at all. After all, within the pantheon of Wall Street Wizards, Dougherty ranks pretty low on the list. Around 41% of its stock picks "work out" as expected, according to CAPS, and the analyst actually underperforms more than 80% of the investors we track on CAPS. And then there's Dougherty's record in the Hotels, Restaurants and Leisure space in particular:


Dougherty Said


Dougherty's Picks Lagging S&P by

Premier Exhibitions



21 points

Life Time Fitness



26 points

Ambassadors Group (Nasdaq: EPAX)



44 points

Pretty sad, huh? But before you write off this analyst as totally irrelevant, take a closer look at that list. While technically all within the same "sector" of the economy as B-Wild, none of these three companies has a whole lot to do with the business of hawking chicken wings (or any other foodstuffs), now does it? Fact is, though, the more you focus on food and drink retailing, the better Dougherty's record looks. The company recommended buying shares of Green Mountain Coffee (Nasdaq: GMCR) last year for instance, and is beating the market soundly with that pick. Most pertinent of all, take a gander at Dougherty's all-time top performer in the Restaurants space: Buffalo Wild Wings itself.

Betting on some Wings and a prayer
Over the two years since it recommended buying this stock back in the bitter cold month of February 2008, Dougherty's B-Wild pick has gone wild -- rocking a 97 percentage point outperformance of the S&P 500. So when Dougherty tells you that this great stock -- and you just know they have to be fond of it after that performance -- is now overpriced, I'd suggest that's an opinion worth listening to.

After all, the numbers I see at Buffalo Wild tell the same tale. In perpetual expansion mode, B-Wild produces only minimal free cash flow from its business. Value it under the more forgiving metric of GAAP accounting, though, and B-Wild's 30-times multiple to earnings looks awfully pricey when read on the same stock menu listing Yum! Brands (NYSE: YUM) at 19 times earnings, McDonald's (NYSE: MCD) at 17, or Burger King (NYSE: BKC) at just 14 -- three stocks, by the way, that all boast gross margins significantly higher than those upon which Buffalo Wild doth graze.

Foolish final thought
Consider too that rival eatery chain Brinker International (NYSE: EAT) just reported a rather steep decline in same-store sales. Sure, B-Wild is growing quickly and has had a great concept, but slowing comps in the most recent quarter, after quarters of stellar comps, could augur poorly for the future. When you get right down to it, therefore, I see a whole lot of risk on the menu at Buffalo Wild, and not a whole lot of reward.

My advice: Don't pass the sauce. Do pass on the stock. There's tastier entrees out there.

Buffalo Wild Wings is a Motley Fool Hidden Gems recommendation. Green Mountain Coffee Roasters is a Rule Breakers choice. The Fool owns shares of Ambassadors Group.

Fool contributor Rich Smith has no position in any of the stocks named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 632 out of more than 160,000 members. The Motley Fool has a disclosure policy.