Buffalo Wild Wings Inc (NASDAQ:BWLD) is a company that owns, operates and franchises its restaurants. Buffalo Wild Wings restaurants are geared toward providing casual dining services in tandem with bar services serving beer, wine and liquor.
The company is a favorite pick of Ken Griffin’s Citadel Investment Group and Jim Simons’ Renaissance Technologies. The company recently announced its third-quarter earnings: Total revenue increased 30.7% to $197.8 million, net earnings increased 32.5% to $11.3 million from $8.5 million, and earnings per diluted share increased 29.8% to $0.61 from $0.47.
"Demand for the Buffalo Wild Wings brand is apparent in our strong same-store sales for the third quarter, with an increase of 5.7% at company-owned restaurants and 4.2% at franchised locations,” said Sally Smith, president and CEO. “Unit growth and strong sales in our new and existing restaurants combined to achieve a substantial increase in revenue of 30.7%. We leveraged this revenue growth to accomplish net earnings growth of over 32%, providing our shareholders with earnings per diluted share of $0.61."
BWLD recently traded at $64.35 a share. Analysts predict BWLD’s share price will rise to $73.29 within the next year. The predictions are solid but that doesn’t mean it’s a good deal. To answer that question, let’s take a closer look at BWLD and its closest competitors – Ruby Tuesday Inc (NYSE:RT); DineEquity Inc (NYSE:DIN), the company that owns Applebees; and Brinker International Inc (NYSE:EAT), the company that owns Chili’s and Maggiano’s Little Italy.
First, we will look at the P/E ratio. This metric divides a company’s share price by its earnings per share – the lower the number, the better. P/E ratio indicates how many times its earnings a company is trading at. If the P/E ratio is high, the stock could be overpriced, so the lower the better. Of the companies we looked at, RT has the lowest forward P/E at 9.94, followed by DIN and EAT tied at 10.69. BWLD has the highest forward P/E of the companies we looked at, coming in at 19.86.
We used beta as a measure of risk. A beta of 1.0 means that the stock moves with the market. The higher a stock’s beta, generally, the more volatile the stock, and, as a result, the more risky. A lower beta tends to indicate that the stock moves more independently from the market. BWLD has the lowest beta of the companies we looked at, just 0.85. EAT was next at 1.46, followed by DIN’s 3.64.
Next, let’s look at the earnings growth consistency and expectations. Expected growth estimates can be wrong. In fact, they are frequently overstated, but they can be useful when comparing companies or comparing a company’s performance relative to its industry. BWLD’s earnings grew 25.9% over the last five years, compared to 5.1% for its industry. It is forecast to continue outpace its industry. BWLD’s earnings are expected to grow 20.7% over the next five years, versus 15.3% earnings growth for its industry.
RT’s earnings actually shrank 14.9% over the last five years, but analysts expect its earnings to grow by 12% over the next five years. In comparison, DIN’s earnings grew 9.5% over the last five years and are expected to grow 11% over the next five years. EAT’s earnings lost 0.5% over the last five years but are expected to grow 13% over the next five years. BWLD and DIN have the most consistent earnings growth.
Hedge Fund Ownership
Stocks that are favored by hedge funds tend to outperform the market by a few percentage points on the average. Of the companies we looked at, DIN was the most popular. Of the 300+ hedge funds we track, 18 had positions in DIN at the end of the second quarter. EAT was next at 16, followed by RT at 15 and BWLD at 12.
The Bottom Line
We like BWLD and DIN the best. These companies have consistently strong growth, decent forward P/E ratios and fair hedge fund interest. Either stock offers a good possibility for modest growth, but there are other stocks out there, even within the same industry, that offer just as much, if not more potential upside, like the Bravo Brio Restaurant Group (NASDAQ:BBRG) or Denny’s Corporation (NASDAQ:DENN). Previously we analyzed Chipotle (NYSE:CMG), Yum Brands (NYSE:YUM), and Panera (NASDAQ:PNRA). YUM’s PE ratio and expected growth rates are very close to BWLD’s. PNRA and CMG seem overpriced relative to BWLD.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.