Has Wingstop (WING) Pulled Back Enough After Recent Consumer Services Repricing

• If you are wondering whether Wingstop shares still offer value after their recent swings, this article will walk through what the current price might be implying and how that stacks up against several valuation yardsticks.
• The stock closed at US$221.65, with returns of a 16% decline over 7 days, a 19.8% decline over 30 days, a 13.7% decline year to date, a 26.9% decline over 1 year, a 29.2% gain over 3 years and a 66.9% gain over 5 years, which may have shifted how investors see both its potential and its risks.
• Recent headlines around Wingstop have focused on its positioning within the US consumer services space and how the market is reassessing valuations in that segment. This mix of shorter term weakness and longer term gains has kept attention on whether the current price fairly reflects the company’s prospects.
• On Simply Wall St’s valuation checks, Wingstop has a value score of 3 out of 6, which we will unpack by looking at different valuation approaches before finishing with a way to frame valuation that goes beyond any single model.

Find out why Wingstop's -26.9% return over the last year is lagging behind its peers.

Approach 1: Wingstop Discounted Cash Flow (DCF) Analysis

A DCF model takes estimates of a company’s future cash flows and discounts them back to today’s dollars to see what those future streams might be worth right now.

For Wingstop, the model uses a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is about $54.7 million. Analysts and extrapolated estimates project free cash flow rising to $356.4 million by 2030, with interim annual projections between 2026 and 2035 discounted back to today using Simply Wall St’s assumptions.

When all those discounted cash flows are added together, the model arrives at an estimated intrinsic value of about US$246.32 per share. Compared with the recent share price of US$221.65, this implies the stock is around 10.0% below that DCF estimate, which indicates that Wingstop screens as slightly undervalued on this model.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Wingstop is undervalued by 10.0%. Track this in your watchlist or portfolio, or discover 53 more high quality undervalued stocks.

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

Approach 2: Wingstop Price vs Earnings (P/E)

For profitable companies, the P/E ratio is a useful way to think about how much you are paying for each dollar of current earnings. It quickly links the share price to the business’s ability to generate profit, which is usually what ultimately matters to shareholders.

What counts as a “fair” P/E depends on how the market views a company’s growth potential and risk. Higher expected growth or lower perceived risk can support a higher P/E, while slower growth or higher risk tend to point to a lower P/E as being more reasonable.

Wingstop currently trades on a P/E of 35.34x. That sits above the Hospitality industry average of 21.36x, but below the peer group average of 59.24x. Simply Wall St’s Fair Ratio for Wingstop is 16.72x. This Fair Ratio is a proprietary estimate of what the P/E might be, given factors such as earnings growth, industry, profit margins, market cap and company specific risks. Because it folds these elements into a single number, it can be more tailored than a simple comparison with broad industry or peer averages.

Comparing the current P/E of 35.34x with the Fair Ratio of 16.72x suggests the shares are trading above that model based reference point.

Result: OVERVALUED

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Upgrade Your Decision Making: Choose your Wingstop Narrative

Earlier we mentioned that there is an even better way to understand valuation. Narratives on Simply Wall St let you attach a clear story about Wingstop to the numbers by tying your view on future revenue, earnings and margins to a forecast, turning that into a Fair Value, and then comparing it with the current price. Each Narrative sits on the Community page, updates automatically as fresh news or earnings land, and allows very different interpretations of the same stock, such as a more cautious view that sees fair value around US$241.24 and a more optimistic view closer to US$400. This helps you decide if the current price looks high, low or about right for your own thesis.

Do you think there's more to the story for Wingstop? Head over to our Community to see what others are saying!

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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