Here's Why You'll Regret Not Shorting Wingstop

Wingstop (WING) is an apparently high-growth restaurant company that offers cooked-to-order, hand-sauced, and tossed chicken wings. Despite the fact that Wingstop is a growth stock, I have recommended shorting it several times due to its lofty valuations.

Although the stock is flat since I first recommended shorting it, I think Wingstop has considerable downside to offer. The company recently released its quarterly results and managed to better the analysts’ estimates, which, in my opinion, weren’t high enough given the company’s valuation.

Wingstop reported revenue of $22.72 million, beating the consensus merely by $0.67.
Wingstop’s sales were up 18.1%, which may seem impressive, but I’ll explain later in this article why it isn’t enough. On the earnings front, Wingstop reported EPS of $0.15, beating the analysts’ estimates by $0.01.

Wingstop rallied after posting better-than-expected quarterly results, mainly due to a short squeeze, however I expect the shares to retract in the months to come and here’s why.


Wingstop is currently trading at 59x trailing earnings and has a forward P/E of 50.
Image by Pexels / Pixabay
This indicates that analysts are not expecting Wingstop’s earnings to grow significantly over the next twelve months. Moreover, Wingstop has a P/E ratio of 10.57, which is expensive no matter how you look at it.

Wingstop’s insane valuation is the primary reason why I am not impressed with the company’s quarterly results. With valuation so high, Wingstop should be reporting annual growth of over 30% for the next two years.

However, as per Yahoo! Finance, Wingstop’s sales are expected to jump just 17.4% this year and 10.5% the year after. Assuming that Wingstop manages to meet the analysts’ EPS expectations for the next one year, Wingstop will be trading at a trailing P/E of 50 12 months from now with expected annual growth of just 10%.

I honestly don’t believe a company with annual growth of only 10% should be trading anywhere near 50x trailing earnings, which is why I expect Wingstop to retract considerably in the next few months. The company’s valuation is just not sustainable and fundamentals will soon catch up with reality.


Given Wingstop’s extreme overvaluation, it is no surprise that insiders have been dumping the stock and, as mentioned above, I think investors should bet against the stock too. There’s no way Wingstop can sustain its overvaluation for a long-time especially given its unimpressive growth. Thus, I think Wingstop is a great short candidate as of now.

Disclosure: No Position
Published on Aug 24, 2016
By Ayush Singh

Copyrighted 2020. Content published with author's permission.

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