A Tale of Two Identities

While sitting at the Ann Arbor Buffalo Wild Wings last night watching the Superbowl in a packed house, once again I reveled in how big of a cash cow a business like this must be. This bitterness for not coming up with the idea myself was further compounded as our waitress alerted us of the fact that someone had just placed an order for some 2500 wings and that we would not be able to get food for the time being (beer took wings place in case you were wondering). Anyhow I digress, I have thought about investing in Buffalo Wild Wings company on many different occasions via stock and stock options but the seemingly inflated price always managed to keep me away. So during a dip like this, one is always smart to make a list of names that you like but just have not had the opportunity to get into– and like clock work the WSJ had a write up on the stock that made me think about the changing identity of a company like Buffalo Wild Wings and many other types of stocks.

With annual EPS growth of 27% in the last ten years, BWLD (the ticker) is the literal definition of a growth stock:BWLD 10y EPS GRate

 

This is also in the face of chicken prices rising consistently in the same time period; an amazing feat honestly:

Chick Com Price

 

However trading at a PE ratio of almost 30 (partially aided by Chipotle’s great earnings recently) investors are placing an extraordinarily large premium on a company like this being able to continue abnormal earnings growth in the upcoming quarters and so on. I think this is where important distinctions need to be made between growth and value and when growth gets taken too far. Any sort of headwind that BWLD faces in the upcoming quarters could translate to certain figurative death for investors, and while the company says they are focused on expanding, the US markets can only grow for so long. I am not the foremost opinion on this, but loud sports watching american wings and beer does not scream investment opportunity to me.

I think BWLD is at a crossroads, where the stock will turn from a growth stock trading with a growth PE to a stock that is overpriced and begging for a beat down. Until at some point it becomes cheap enough with just enough sentiment upside that one can trade it as a value stock. I do not write a post like this lightly either, I am the number one advocate of investing in companies that you have contact with (big fan of AAPL Costco Cisco Automakers etc) and I will be honest that I have never been in a Buffalo Wild Wings that has not been packed but at some point enough is enough — just ask Amazon.

2 thoughts on “A Tale of Two Identities

  1. Chris Chegash

    I agree that at some point, they simply can’t add more locations. With Buffalo Wild Wings just recently opening their 1000th store, their expansion will slow down severely or halt soon. When that happens, the only way to increase value is to increase revenue at their stores. At that point, I agree that Buffalo Wild Wings will become a value stock rather than a growth stock.

    For the record, as I blogged about last week, I think Apple is heading in a similar direction.

    1. bdinger Post author

      I think the fundamental difference between this and AAPL is that the latter still has the chance to innovate and take advantage of international growth– the best BWLD can do is add a couple of sauces, beers, and tablet ordering. In terms of valuation as well.. just comparing AAPL to a company like MSFT (huge cash horde etc — AAPL should at least trade a couple of multiple points higher.. At very least AAPL will have a much smoother transition to trading as a value stock)

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