Wingstop Stock Races to All-Time Highs Ahead of Q4 Earnings

After Wingstop NASDAQ: WING shares plummeted nearly 6% on the Pfizer NYSE: PFE vaccine news, many investors feared that the Wingstop bull run had come to an end. WING had been a pandemic winner, peaking above $160 over the summer – nearly double where it started 2020. The end of the pandemic, the thinking went, would take away Wingstop’s digital advantage over other restaurants.

Well, 3+ months later, “normalcy” doesn’t seem imminent and the market has come to the realization that Wingstop is going to stay hot once the vaccine is widely distributed.

With Q4 earnings set to be released tomorrow before the bell, the question is:

Has this Wingstop rally run its course?

No. Shares still have more upside. Here’s why:

Wingstop Combines Same-Store Sales Growth with Expansion Plans

Barring something unforeseen, Wingstop will complete its 17^th straight year of domestic same-store sales growth in 2020. That stretch includes the 2008 financial crisis, showing that tough economic environments are no match for Wingstop’s growth machine.

It’s not as if Wingstop is growing comps at a snail’s pace though. Domestic same-store sales were up 11.1% yoy in full-year 2019 and 25.4% yoy in Q3 2020.

On top of that, Wingstop has plans to expand its footprint. By a lot. The wings chain currently has around 1,400 worldwide locations but has plans to more than quadruple that number to 6,000 long-term.

Wingstop’s forward P/E of around 120 makes some investors queasy, but the company’s valuation could soon look cheap if it continues to grow comps at double-digit rates and its expansion goes as planned.

Wingstop Could Keep Market Share Gains

Digital sales are currently accounting for 62% of Wingstop’s business, up from 40% before the pandemic. What happens when people are able to eat out in restaurants? Will Wingstop lose its gains to restaurants that don’t enable online orders?

Probably not. Thousands of restaurants have gone out of business since March 2020. At the same time, overall restaurant sales have cratered since the onset of the pandemic. Post-pandemic, there’s every reason to expect restaurant sales to return to pre-pandemic levels – even if it takes a little while.

Put it all together and Wingstop could end up keeping its market share gains – but in a bigger market.

Wingstop Knows How to Delight Customers

The advertising game has changed. Modern trust-building forms of advertising, such as promotions, often have a better ROI than television ads. Revolve NYSE: RVLV, for example, has built a multi-billion-dollar online fashion retailer by marketing through an army of Instagram influencers.

Wingstop also gets it.

On Valentine’s Day, the company brought back three popular remix flavors to its menus: Hot Lemon, Bayou BBQ and Lemon Garlic. Wingstop didn’t just pull these flavors out of a hat though.

"The fans are always at the center of everything we do, so we're continually listening to their feedback on social media and the demand for the return of these flavors was made clear across the nation," said Wingstop Chief Marketing Officer Christina Clarke. "Wingstop is a top destination for Valentine's Day -- a time that's all about who and what you love. We love the fans and we know they love these remixes, which makes Valentine's Day perfect for their reintroduction."

Wingstop actually looked through social media posts dating all the way back to 2019 – it feels like an eternity ago, right? – and found thousands of posts that asked Wingstop to bring back those flavors. On top of that, Wingstop turned some fans’ social posts into promotion codes for $10 off their favorite remix flavor.

It’s not clear how much Wingstop spent on this promotion all-in, but it’s almost certainly much less than it would have cost for a series of television ads – and probably a lot more effective, as well.

How Should You Play Wingstop?

It’s tough to buy a stock that is trading at all-time highs and that is in overbought territory. But Wingstop could be trading even higher after reporting earnings tomorrow since the pandemic and cold weather likely led to a lot of online Wingstop orders in the fourth quarter.

There will be some volatility with Wingstop in the short and intermediate-term, but the long-term arrow is pointing up.