Does the Drop in Wendy’s Shares Signal a Rebound Opportunity in 2025?

Thinking about whether to hold onto or snap up shares of Wendy’s? You are not alone. Even the most patient long-term investors can get a bit jittery after seeing a stock’s value drop by more than 40% in a year. Wendy’s sits in exactly that camp, with its shares down 44.5% over the last twelve months and 42.1% for the year to date. But in the past week, it has edged up by 2.2%, a tiny green shoot amid the broader slide. That little uptick comes as the market warms up to restaurant chains again after a rough stretch of high inflation and shifting consumer habits. Still, it is clear that many investors are reconsidering risk and growth potential in the sector, which has shaken up Wendy's price chart over both the short and long term.

Now for the part you probably care about most: is Wendy’s undervalued? On a simple 6-point valuation score, where a higher number means more undervalued signals, Wendy’s checks the box in 5 out of 6 categories. That suggests opportunity, but as always, valuation is only as good as the approach behind it. So, let’s dig into the methods behind that score and keep an eye out for a smarter, more holistic way to think about value by the end of this article.

Why Wendy's is lagging behind its peers

Approach 1: Wendy's Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model is designed to estimate the present value of a business by projecting its expected cash flows into the future and discounting them back to today. This approach helps investors try to determine what a company is intrinsically worth, regardless of the current market price.

For Wendy's, the latest reported Free Cash Flow stands at $263.5 million. Looking ahead, analysts see this figure fluctuating but maintaining strength, with projections of $253 million by 2027 and estimates reaching about $299.9 million by 2035. Although analyst forecasts only extend several years out, further years in this model are extrapolated based on trends in the data.

The DCF analysis for Wendy's, using a two-stage Free Cash Flow to Equity model, indicates an intrinsic value of $13.15 per share. This valuation implies the stock is currently about 29% undervalued compared to its recent market price. With the current cash flow trajectory and a healthy cash generation outlook, Wendy’s appears attractively priced through this lens.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Wendy's.

Our Discounted Cash Flow (DCF) analysis suggests Wendy's is undervalued by 29.0%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: Wendy's Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used valuation tool for profitable companies because it directly relates a company’s market value to its earnings power. For businesses like Wendy’s that steadily generate profits, the PE ratio provides a straightforward snapshot of how much investors are willing to pay for each dollar of earnings.

However, what counts as a “normal” or “fair” PE ratio can shift significantly based on expectations for growth and the level of risk associated with a company. Firms poised for strong earnings growth or those operating in more stable environments tend to command higher PE multiples, while mature or riskier companies generally trade at lower ratios.

Currently, Wendy’s is trading at a PE of 9.3x, which is substantially below both its peer average of 17.7x and the broader hospitality industry average of 24.9x. Rather than simply comparing to these benchmarks, Simply Wall St’s “Fair Ratio” metric offers a more tailored approach. This proprietary measure takes into account Wendy’s growth prospects, risk factors, profit margins, industry context, and market cap. This provides a fairer and more holistic view than a blanket comparison to generic averages.

For Wendy’s, the Fair Ratio stands at 17.2x. Since the current PE of 9.3x is well below this level, it suggests the stock is selling at a significant discount to what would be considered fair given its unique profile.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Wendy's Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let’s introduce you to Narratives, a smarter, more dynamic approach to investing that connects the story you believe about a company with the financial forecasts and fair value estimates behind the numbers.

A Narrative lets you express your view on what’s driving Wendy’s future, like digital innovation or international growth, and see how your story shapes projected revenues, margins, and ultimately an estimate of fair value. Narratives directly link a company’s outlook to updated financial models, giving you a tool that helps move beyond “just the numbers” toward investing with conviction.

On the Simply Wall St platform, millions of investors already use Narratives in the Community page to compare fair value to the current price and decide when to buy or sell. These Narratives update automatically as new information like earnings, news, or management changes comes in, so your view and valuations stay current with the market.

For example, some investors see Wendy’s digital strategy and global expansion unlocking major value, with fair value estimates as high as $18.50, while others focus on franchise risks and margin pressures, leading to more cautious valuations around $10.00. Narratives help you decide which story you believe, and what you think Wendy’s is really worth.

Do you think there's more to the story for Wendy's? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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