Feasting on Football
AnnaLisa is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
You’re probably slacking off work lately to finish your fantasy football picks, scheming and scamming to get tickets for your favorite team’s games and rearranging the furniture for the perfect viewing positions for the big game. Well, it’s time to position your portfolio for a winning trade.
Pigskin Plus Chicken Wings
One of the best stocks to buy at the beginning of football season has been Buffalo Wild Wings, Inc (NASDAQ: BWLD). Looking at a multi-year chart I noticed that the stock runs from late summer to the spring and then sells off, year after year. People buy the stock in anticipation of ever better numbers from football (pro and college) season, the Super Bowl and then March Madness. In the spring it loses momentum and sells off but less and less every year. The pattern has become more obvious as time passes. Buffalo Wild Wings is a name I’ve been watching for several years and have occasionally dipped my wing in, so to speak.
Buffalo Wild Wings has a lot more going for it besides a predictable price pattern. It’s a fundamentally good business with increasing brand recognition and a canny eye for choosing new locations. With 835 locations in the US and Canada, the company is planning over 70 new location openings by the end of the year and soon extending its ‘wingprint’ to Puerto Rico and the Middle East.
It just broke ground on a location in Williston, North Dakota in the heart of the Bakken shale oil boom as an example of their real estate savvy. Oil companies are hiring big time. So many people are flocking to work there isn’t enough housing. Wages are good and it’s thirsty work. The whole scenario is a natural for Buffalo Wild Wings, akin to the hand over fist money making saloons and restaurants of the Gold Rush. But instead of dance hall girls you get big screen TVs. Instead of rotgut you get beer and wings. Isn’t the twenty-first century great?
The 30 year old sports bar-fast casual chain originally located the restaurants near the biggest college football schools and has grown consistently and strategically since then. The company franchises 550 of the restaurants and owns and operates the rest.
When the company reported Q2 earnings in July they cited increased chicken prices affecting operating margin and guided lower for the rest of 2012. Despite the rise in commodity costs Buffalo Wild Wings has managed to raise menu prices without too much squawking from its customers. They have also increased advertising to attract new patrons and they’ve cut expenses.
As anyone who has ever worked at a bar or restaurant will tell you the big money is made from alcoholic beverages. Unlike most of its publicly traded fast casual competitors Buffalo Wild Wings offers an extensive variety of beers, including craft beers as well as wine and liquor. The restaurants have the sporting events and the spicy wings that keep patrons drinking yet it’s still family friendly.
The most similar competitor is Hooters and I would hardly call that family friendly. Buffalo Wild Wings manages to walk the fine line between raucous sports bar and a place where kids’ sports teams can go to celebrate or a family can watch sports together and have a fast, tasty meal.
Other competitors are Panera Bread Co (NASDAQ: PNRA) and Chipotle Mexican Grill Inc (NYSE: CMG), ubiquitous fast casual restaurants, both with higher P/E ratios, 29.42 and 36.74 respectively. I prefer Buffalo Wild Wings as a fast casual name as its seasonal uptrend is just kicking in. I also like its conservative management, they’re from Minnesota, don’t you know, with low corporate governance risk in all categories.
Now, if I just wanted a low P/E food purveyor I could go with Krispy Kreme Doughnuts Inc Co (NYSE: KKD). It has a P/E of 3.32 but the P/E is not always the ‘hole’ story. The share price was $50 in 2003 and fell as low as a dollar and change in 2009, cheaper than one of their doughnuts. This was widely attributed to an overheated expansion of the doughnut shops. As amazingly delicious as one of their glazed doughnuts is fresh off the assembly line, this oversupply didn’t translate to sizzling sales.
And this is the major difference between these two; Buffalo Wild Wings has had a slow and steady strategic expansion program in place for 30 years while Krispy Kreme made the same mistake as Starbucks, too many shops too fast.
Maybe you want to watch the game in the solitude of your own Sanctum of Sports eating pork rinds but lots of people like to watch with others, daring them to eat just one more wing or try the hottest sauce. Just look at a chart and you’ll see pigskin is great for this chicken wing restaurant.
And, hey, good luck on your fantasy football picks!
leglamp has no positions in the stocks mentioned above. The Motley Fool owns shares of Buffalo Wild Wings, Chipotle Mexican Grill, and Panera Bread. Motley Fool newsletter services recommend Buffalo Wild Wings, Chipotle Mexican Grill, and Panera Bread. 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.