Wingstop: Initiating Coverage With $98 Fair Value and Narrow Moat; Shares Overpriced

We’re initiating coverage of Wingstop WING with a narrow moat rating and fair value estimate of $98 per share, leaving shares trading at a nearly 90% premium to our intrinsic valuation. While the firm boasts an extraordinary growth runway, with our forecasts already suggesting that it achieves $10 billion in systemwide sales and 5,000 total units in a decade (up from $2.7 billion and nearly 2,000 currently), we don’t surmise its prospects justify such a lofty multiple (93 times forward earnings). Our narrow moat rating is attributable to Wingstop’s brand intangible assets, underpinned by best-in-class unit economics and robust comparable store sales growth.

More concretely, we estimate about a 2.3-year unleveraged payback for the operator, suggesting unleveraged returns on investment of more than 40% for franchisees. Those are the best four-wall economics in our restaurant coverage currently, underpinning the firm’s explosive growth narrative—with Wingstop posting double-digit unit growth in each of the past five years, and our forecasts project such momentum to continue until 2028 as the firm backfills existing markets and finds traction abroad. Critically, the chain’s indulgent fare seems to be resonating strongly with customers despite what appears to be niche cuisine; Wingstop has posted 19 straight years of comparable store sales growth, with $1.6 million in self-reported average unit sales and mid-20s restaurant margins undergirding a strong and improving economic model.

On balance, we expect 15%-16% average annual sales growth over the next five years, with 18% annual growth in operating profit and 20% annual growth in adjusted EPS as the firm’s international push drives general and administrative leverage. Nevertheless, we expect multiple compression in the medium term as the pace of development slows, with our fair value estimate already implying a lofty 49 times price/earnings multiple.