Wingstop Earnings: Another Quarter of Otherworldly Growth Not Enough to Prevent Selloff in Shares

We're impressed by another quarter of stratospheric growth by narrow-moat Wingstop despite the market’s brutal reaction of shares down 19%-20%. The firm's third-quarter revenue of $163 million comfortably edged our $152 million estimate, driven by 20.9% transaction-led comparable store sales growth that was ahead of our 18% forecast. Importantly, the firm raised its unit development target for the full-year to 320-330 stores, from 285-300 previously, although we believe that what it didn't do—raise comparable-store sales growth targets for 2024—led to the harsh correction in its shares. After digesting earnings, we plan to raise our $168 fair value estimate by a high-single-digit percentage, driven by time value, the third-quarter earnings beat, and a higher medium-term unit growth outlook, with management's commentary suggesting that midteens annual unit growth is plausible as the firm continues to find traction both in the US and abroad. However, while we regard $3 million average unit volumes as achievable in the long run (up from $2.1 million currently), we view a return to lower (mid-single-digit) comparable-store sales growth in 2025 and beyond as likely, which we believe the market is just beginning to price in.