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Bear of the Day: Wingstop Inc. (WING)

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·3 min read
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Wingstop WING, a Zacks Rank #5 (Strong Sell) stock, franchises and operates restaurants. Its locations offer classic and boneless wings as well as chicken tenders that are cooked-to-order and tossed in a variety of sauces. The company has franchised nearly 1,700 restaurants and operates 36 company-owned restaurants in 7 different countries. Wingstop was founded in 1994 and is based in Addison, TX.

The Zacks Rundown

Wingstop is part of the Zacks Retail – Restaurants industry group, which currently ranks in the bottom 35% out of approximately 250 industries. Because this industry is ranked in the bottom half of all Zacks Ranked Industries, we expect it to underperform the market over the next 3 to 6 months. Also note the unfavorable valuation characteristics for this group below:

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Candidates in the bottom half of industry groups can often represent solid potential short candidates. While individual stocks have the ability to outperform even when included in poor-performing industries, their industry association serves as a headwind for any potential rallies. Wingstop is fighting an uphill battle and the stock is confirming this notion as it continues to make a series of lower lows.

Recent Earnings Misses

WING has fallen short of estimates in each of the last two quarters. The restaurant company most recently reported Q4 EPS in February of $0.24, missing the $0.32 consensus estimate by -25%.

In Q3 of last year, WING once again missed estimates when it reported EPS of $0.29. This represented a -17.14% miss versus the $0.35 estimate. Consistently falling short of earnings estimates is a recipe for underperformance, and WING is no exception.

Deteriorating Outlook

WING has been on the receiving end of negative earnings estimate revisions as of late. For the current quarter, analysts have decreased estimates by nearly 14% in the past 60 days. The Q1 Zacks Consensus EPS Estimate is now $0.38, reflecting a -13.64% regression relative to the same quarter last year. Falling earnings estimates are a huge red flag and need to be respected. Negative growth year-over-year is the type of trend that bears like to see.

Technical Trend

As illustrated below, WING is in a sustained downtrend. Notice how the stock has plunged below both the 50-day and 200-day moving averages signaled by the blue and red lines, respectively. The stock is making a series of lower lows even as the market has rallied over the past few weeks. Also note how both moving averages have rolled over and are sloping down – another good sign for the bears.

StockCharts
StockCharts


Image Source: StockCharts

Even with the recent declines, WING is still relatively overvalued, irrespective of the metric used:

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Final Thoughts

Recent earnings misses and an unpredictable equity market don’t exactly favor bullish WING investors. Our Zacks Style Scores depict a weakening outlook for this stock, as WING is rated a worst-possible ‘F’ in our Value category and a ‘D’ for our overall VGM score. A deteriorating fundamental and technical backdrop show that this stock is fighting an uphill battle.

The fact that WING is part of one of the worst-performing industry groups simply adds another headwind to a long list of concerns. Potential investors should only think about including this stock in their portfolio as part of a hedge or short strategy. Bulls will want to steer clear of an overvalued WING until the situation shows major signs of improvement.


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Zacks Investment Research