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Wingstop (WING - Free Report) is a Zacks Rank #1 (Strong Buy) that franchises and operates restaurants under the Wingstop brand name. Its restaurants offer cooked-to-order, hand-sauced, and tossed chicken wings. 

The stock has been on a mission this year, already up 50% in 2023. The move stemmed from improving margins on deflation of its main product bone-in chicken wings. On top of that, sales growth has been accelerating, which has helped the company beat earnings expectations four quarters in a row.

Wingstop recently reported Q1 earnings, with the results impressing inventors enough to take the stock well beyond all-time highs.
 

About the Company

Wingstop was founded in 1994 and is headquartered in Addison, Texas. The company has 1,959 global locations in eight global markets, with 228 new additions in 2022.

Wingstop has a market cap of just over $6 Billion and has a Forward PE of 103. This high valuation has scared some investors away and gives the stock a Zacks Style Score of “F” in Value. However, the stock has a Zacks Style Score of “A” in Momentum.

Wingstop has seen 19 years of consecutive Same Store Sales (SSS) growth and continued to see robust SSS numbers in Q1.
 

Q1 Earnings Beat: “The Rise of the Chicken Wing”

In early May, the company reported an earnings beat of 28%. Revenues came in at $108.7M v the $101M expected. The company saw adjusted EBITDA at $34.6M, up 60% year over year.

Same Store Sales were up 20% y/y and Wingstop sees FY23 SSS at “high single-digit growth”. The company affirmed 240 net new units globally and sees 37 new opening ins Q1, up 11% y/y.

CEO Michael Skipworth had the following comments on the quarter:

"Our strong first quarter results reflect the continued momentum and strength of the Wingstop brand as we delivered 20.1% domestic same-store sales growth, driven by transaction growth. With this underlying strength, we believe that the strategies we are executing against can deliver our 20th consecutive year of same-store sales growth and another record year of unit growth for Wingstop" 

The stock took flight moving from below the $200 level to $223.77. WING did come back down from those levels, but investors are clearly excited about the company’s growth prospects. Despite the high valuation, the market thinks Wingstop can grow fast enough to justify its stock price.

Much like Chipotle (CMG - Free Report) and the flying burrito stock move of 2019-20, WING has the potential to go much higher than many investors realize.
 

Analyst Estimates

The impressive quarter has forced analysts to take their numbers and price targets higher. Over the last 7 days, analysts’ estimates have gone up in every time frame.

For the current quarter, estimates have spiked from $0.45 to $0.49 over the last month, or 9%.

For the current year, we see estimates trending higher as well. Analysts have taken their numbers from $1.91 to $2.00 or 5%.

Multiple firms have taken their price targets higher since earnings:

RBC reiterated with a Sector Perform but listed its target to $200 from $183.

TD Cowen maintained an Outperform and raised its target to $235 from $210.

Wedbush maintained its Outperform and lifted its price target to $240 from $200.

Barclays reiterated its Overweight with a new price target of $240, up from $200.
 

The Technicals

The stock is up about 50% on the year and many investors do not want to chase. So let us go over some buyable technical levels that bulls can look out for and enter on any pullbacks.

$193 is the 21-day moving average. This is a great spot for aggressive investors to enter looking to play the momentum.

$184 is the 50-day MA, a likely spot for the stock to find consolidation and a bounce.

$153 is the 200-day MA and is unlikely to test anytime soon unless we have a large market sell-off. If that scenario plays out, this area would be a great spot to enter for long-term investors.

For those looking to continue buying into all-time highs, look for a move to $255. This is the 161.8% Fibonacci extension found by drawing from 2021 highs to 2022 lows.
 

Bottom Line

While the valuation is scaring off some investors, Wingstop is hitting all-time highs and crushing earnings. Rather than focus on the valuation, investors should follow the price action as the market is trying to tell us something.

As long as Wingstop continues the SSS growth and margins remain favorable, this stock will be hotter than Wingstop’s very own Atomic sauce.  

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