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Buy Buffalo Wild Wings To Help Your Portfolio Soar

Steve is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

I have a confession to make.

As an investor, I suffer from an insatiable appetite for finding responsible, growing companies with sustainable competitive advantages in their industries.  It's a problem, really; I have trouble doing anything without pausing to break down the investment potential of any given situation.

I'm also a relatively big guy with a propensity for gravitating toward sports, beer, and great food.  You can only imagine my excitement, then, when Buffalo Wild Wings (NASDAQ: BWLD) opened its doors in my city around this time last year.  

In its usual fashion, the company offered free wings for one year to the first 100 people through its doors, scoring loads of free publicity as local television news crews, radio stations, and newspaper reporters interviewed the scores of excited customers who camped on the sidewalk for days in anticipation of the restaurant's grand opening.  Theatrics aside, I was impressed by Buffalo Wild Wings' brilliance in finding such a simple, repeatable strategy to announce its arrival, effectively building its brand one community at a time.

Before we dig further, let's take a look at some key metrics to see how Buffalo Wild Wings stacks up next to a few of its peers:

  Buffalo Wild Wings Yum! Brands (NYSE: YUM)  Red Robin Gourmet Burgers (NASDAQ: RRGB) Chipotle Mexican Grill (NYSE: CMG) 
 Market Capitalization   $1.3 billion  $30.3 billion  $466.7 million  $8.3 billion
 Debt-to-Equity Ratio   0.00  1.43   0.40  0.00
 Current Ratio  1.30  1.00  0.60  4.10 
 Current P/E Ratio  25.0   19.7  19.7  30.7
 Estimated Forward P/E Ratio  20.1  17.9   16.3  25.3
 Dividend Yield  N/A  2.0%  N/A  N/A 
 Payout Ratio  N/A   34%  N/A  N/A 
 Return on Invested Capital  14.8   31.1  6.0  20.9 
 PEG Ratio (5 yr expected)  1.14  1.58  1.25  1.42

With $31 million in cash and no debt on its balance sheet, Buffalo Wild Wings has wisely steered clear of using leverage to finance its aggressive expansion plans.  In addition, while BWLD doesn't pay a dividend, its strong ROIC of 14.8% shows it has no problems finding ways to create shareholder value.  While BWLD can't match the torrid pace of location expansion set by Yum! Brands or Chipotle, the company still aims to open around 100 new locations every year and expects to nearly double its count to 1,700 restaurants across North America within the next five to seven years.  

At first glance the company appears overvalued, trading for 25 times trailing earnings and around 20.1 times next year's estimates.  When measured against analysts' long-term growth estimates of 17.5%, however, that gives BWLD a PEG ratio of 1.14, which I consider an acceptable premium given the company's additional plans to open new locations in the Middle East and Puerto Rico beginning next year.

Shares of BLWD are currently trading more than 20% off their 52-week high after the company's third quarter earnings per share decreased 6.6% from the year-ago period, despite a total revenue increase of 24.8%.  This shouldn't be taken as a sign of greater trouble to come, however, since much of the problem was due to record-high wing prices.  To address the issue, the company is implementing a combination of subtle menu changes and slight price increases, which should offset its higher cost of sales and ease margin pressures going forward.

In the end, given Buffalo Wild Wings' shrewd management, brilliant marketing, and sticky brand, the recent pullback affords hungry investors the perfect opportunity to satisfy even the heartiest appetites for long-term growth.

 

 

 

 

 

 

 

 


Steve Symington has no positions in the stocks mentioned above. The Motley Fool owns shares of Chipotle Mexican Grill. Motley Fool newsletter services recommend Buffalo Wild Wings, Chipotle Mexican Grill, and Red Robin Gourmet Burgers. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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