Seeing Weakness in Buffalo Wild Wings As Buying Opportunity

I have had a great run with Buffalo Wild Wings (BWLD). As of 7/18/07, my BWLD holding had climbed to about 13% of my portfolio, so I sold a small portion around $41 for about a 167% gain from my purchase price in 7/06.

Clearly the company was having a great run. Management was making the right moves and growth was outstanding. Earlier this week, the company released earnings that were in line with analyst expectations of $0.22 per share. While they met expectations, they did not exceed them as they had the previous 3 quarters.

The Street did not like this and Mr. Market took the stock down by about 20%. A couple analysts downgraded the stock primarily because of same store sales. On the surface same store sales looked excellent at an 8% increase. However, that also included an overall price increase of about 6%, so the net amount of growth was 2% and analysts did not like this slower growth rate.

BWLD 1-yr chart:

What the analysts are missing though are the seasonal factors leading to that slower growth. BWLD thrives on sports. And the 2nd quarter is seasonally the weakest quarter for sporting events with only the NBA playoffs and finals drawing fans to sports bars.

But this 2nd quarter had to be one of the worst sports quarters in years. The NBA playoffs and finals were an absolute bore. The finals was a 4 game drubbing with two small market teams and with San Antonio Spurs winning with absolutely boring defensive basketball. What's more we were comparing to a year ago period that included one of the most exciting NBA finals one year ago featuring the Miami Heat and the Dallas Mavericks that went 6 games. Frankly an increase of 2% given those horrible comparisons in sporting events.

Given all that, I am looking at this recent weakness to buy back the shares I sold a couple of weeks ago. However, the technicals I watch indicate that the price could fall to around $30 before hitting support. So I am watching the price and intend to replace the shares near $30 or when the technicals change positive again.

While I am primarily a fundamental research investor, I learned long ago that you have to pay attention to the technicals before buying or selling. The technicals provide a good gauge of the near term direction and the fundamental analysis provides the gauge of long-term direction.