Food Stocks Gone Wild!
Damon is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The stock price of Buffalo Wild Wings (NASDAQ: BWLD) has been soaring like a flying buffalo for the past 2 years. Since July 2010 the share price for common stock has more than doubled. The business of hot wings, adult beverages, and a fun place to hang out for the younger (20- and 30-something) crowd has led to more than 23% sales growth over the past 5 years. If they can keep up the growth and continue to offer a desirable product, the stock could run up even higher. There is really nothing stopping the proven concept of a hot wings-oriented sports bar from growing into every city in America, Europe and Asia. Just imagine a billion Chinese gathered around the local Buffalo Wild Wings eating spicy chicken!
On the other hand, with only a 6% net profit margin and rising food costs the stock could be due for a buffalo nap. At the current share price of $85 and change, the stock is selling for 30 times trailing earnings and 5 times book value. But with a 5-year expected PEG ratio of 1.27 (according to Yahoo Finance) the stock appears to be a good long-term growth stock.
When they report earnings next week it will be a good indication of whether or not they have been able to keep up the nearly 30% growth they have experienced over the past year. If so, the stock could continue its stampede upward. If not, beware the short side as the stock could take a serious tumble, which for long-term investors could lead to a better entry price.
Speaking of good eats, shares for Whole Foods Market, Inc. (NASDAQ: WFM) are worth 150% more now than 2 years ago. Growth is the story here as well. As of Sept. 25, 2011, Whole Foods Market operated 311 stores in the United States, Canada, and the United Kingdom. This is after just 10 years in existence and through mostly “organic” growth (they did acquire Wild Oats, but otherwise organic). Net profit margin is only 3.7% but the company has no debt and has been able to sustain earnings growth of 27% over the past year with 5 years sales growth of more than 12%.
And who does not like good food! Other grocers are struggling to keep customers coming back and are trying to cut costs, offer loyalty programs, and are giving away more coupons to attract business. Whole Foods simply offers a good product (organic and natural foods) at a mostly fair price, although some would argue that they command premium prices (“Whole Paycheck” is a common nickname). The formula seems to be working and with a 5 year expected PEG of 2.08 they are probably a good bet to continue growing.
Their CEO, John Mackey, is an interesting corporate executive. He writes a blog, and delivers a message that people like to hear. For example, he presented “Food for the Future” at The Institution of Engineering and Technology on June 5, 2007, the evening before the company opened its flagship store in London. He is an entrepreneur and an optimist and those who believe in him worship his beliefs. And then he backs it up with real results. The past 3 years earnings growth has been around 40%.
Of course if the US economy falls back into recession that growth could come to a screeching halt. The company also reports the latest quarter’s earnings results next week. Like BWLD the stock could jump higher on a good report or take a nosedive on a miss. But like BWLD I am a fan of the long-term growth prospects for WFM and would be a buyer if the share price retreated enough from the current price of about $94.
EnigmaDude has no positions in the stocks mentioned above. The Motley Fool owns shares of Buffalo Wild Wings and Whole Foods Market. Motley Fool newsletter services recommend Buffalo Wild Wings and Whole Foods Market. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. If you have questions about this post or the Fool’s blog network, click here for information.