Is Wingstop’s Recent Expansion News Enough to Justify Its Rising Share Price?

• Wondering if Wingstop is an opportunity hiding in plain sight? You're not alone. Digging into its valuation could reveal some surprises for smart investors.
• The stock just notched a 4.2% gain over the last week and is up 3.6% for the past month, but it's still down 13.4% year to date and 19.6% lower than this time last year, despite impressive long-term returns.
• Much of Wingstop's recent volatility has been shaped by growing excitement around its expansion plans and strategic partnerships, which have grabbed headlines across the industry. This momentum comes even as analysts and news outlets weigh in on the company’s ability to maintain strong growth in a changing consumer landscape.
• When it comes to valuation, Wingstop scores just 1 out of 6 on our value checks. This is a signal that there is more to unpack about how the market is currently pricing this growth story. Next, we'll break down the typical valuation methods, and later in the article reveal an even better approach to figuring out if Wingstop is truly worth your attention.

Wingstop scores just 1/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Wingstop Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model is a popular tool for estimating a company’s intrinsic value by projecting its future cash flows and discounting them back to today’s dollars. This approach relies on making reasonable assumptions about how much cash Wingstop will generate over time and then weighing that against what those cash flows are worth right now.

For Wingstop, the most recent twelve months of Free Cash Flow stood at $59.2 Million. Analyst consensus covers projections out to 2029, with the company’s Free Cash Flow expected to reach $307.6 Million by that time. This highlights robust growth across the forecast period. It’s important to note that while analyst-backed estimates are available for the next five years, projections beyond that point are extrapolated data.

Based on these assumptions, the DCF model estimates Wingstop’s intrinsic value at $225 per share. This compares to the current share price, which is about 12.4% higher than the modeled fair value. This suggests the stock is trading at a premium.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Wingstop may be overvalued by 12.4%. Discover 850 undervalued stocks or create your own screener to find better value opportunities.

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

The Price-to-Earnings (PE) ratio is a widely used valuation metric for companies like Wingstop that are consistently profitable. It reflects how much investors are willing to pay for each dollar of earnings. For businesses that have a clear track record of generating profits, the PE ratio provides a meaningful gauge of sentiment and future expectations.

It’s important to remember that a “normal” or fair PE ratio isn’t one-size-fits-all. Higher valued PE ratios often signal investor optimism about faster-than-average earnings growth or a lower perceived risk. Lower PE ratios can suggest muted expectations or greater uncertainty.

Wingstop currently trades at a PE ratio of 40.3x, which is below its peer group average of 66.4x but still notably higher than the hospitality industry average of 23.7x. This shows investors are assigning a growth premium, though not as high as many of its peers.

Simply Wall St's proprietary “Fair Ratio” for Wingstop is 19.7x. Unlike raw comparisons with peers or industry averages, the Fair Ratio blends key factors like the company’s earnings growth outlook, profit margins, sector risks, and market cap. This approach offers a much more nuanced and tailored benchmark for what the PE should be.

Comparing Wingstop’s current PE (40.3x) with its Fair Ratio (19.7x), the current valuation is considerably higher than what would be expected based on its profile. This suggests the stock is priced for very strong growth or is overvalued relative to fundamentals.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1407 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Wingstop Narrative

Earlier we mentioned there's an even better way to understand valuation. Let's introduce you to Narratives. A Narrative is a simple yet powerful tool that lets you map your perspective, the story you believe about a company, directly to financial forecasts and an estimated fair value. On Simply Wall St's Community page, used by millions, Narratives turn your assumptions about revenue, earnings and margins into actionable valuations you can compare with the current price to decide when to buy or sell.

Unlike static models, Narratives update automatically whenever key news or earnings reports arrive, helping you keep your view of Wingstop fresh and relevant. For example, some investors may have an optimistic Narrative, projecting rapid digital expansion and setting a fair value as high as $477 per share. More cautious users might predict headwinds and see fair value drop toward $185. Narratives help you make informed, adaptive decisions that reflect your unique perspective and the latest information, linking the company’s story, numbers and your investment strategy together.

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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