A quick glance at the historical earnings and price correlated FAST Graphs™ on Buffalo Wild Wings (BWLD) shows a picture of slight undervaluation (See Purple Circle in first graph). However, since analysts are expecting the earnings growth to somewhat slow down, when you look at the forecasting graph the stock appears modestly overvalued - it's just within the value corridor of the five orange lines - based on future growth (See Blue Circle in fifth graph and orange value corridor).
Because of the higher valuation typically awarded to fast growth, growth stocks offer the potential for greater capital appreciation. On the other hand, they also offer higher risk. First of all, they tend to command much higher than average PE ratios, and second, achieving very high levels of growth is very difficult to sustain. Consequently, forecasting future earnings growth is more important with high growth stocks than any other class of stock. Also, the average growth stock typically ploughs all of its profits back into the company to fund its future growth, instead of paying dividends.
Buffalo Wild Wings Inc: Large-cap Growth at an Attractive Price
About Buffalo Wild Wings Inc: Directly from their website
"Buffalo Wild Wings, Inc., founded in 1982 and headquartered in Minneapolis, Minnesota, is a growing owner, operator and franchisor of Buffalo Wild Wings Grill & Bar™ restaurants featuring a variety of boldly-flavored, made-to-order menu items including its namesake Buffalo, New York-style chicken wings. The Buffalo Wild Wings' menu specializes in eighteen mouth-watering signature sauces and seasonings with flavor sensations ranging from Sweet BBQ™ to Blazin'®. Guests enjoy a welcoming neighborhood atmosphere that includes an extensive multi-media system for watching their favorite sporting events. Buffalo Wild Wings is the recipient of hundreds of "Best Wings" and "Best Sports Bar" awards from across the country. There are currently 837 Buffalo Wild Wings locations across 48 states in the United States, as well as in Canada."
Earnings Determine Market Price: The following earnings and price correlated F.A.S.T. Graphs™ clearly illustrates the importance of earnings. The Earnings Growth Rate Line or True Worth™ Line (orange line with white triangles) is correlated with the historical stock price line. On graph after graph the lines will move in tandem. If the stock price strays away from the earnings line (over or under), inevitably it will come back to earnings.
Buffalo Wild Wings Inc: Historical Earnings, Price, Dividends and Normal PE Since 2003
Performance Table Buffalo Wild Wings Inc
The associated performance results with the earnings and price correlated graph, validates the principles regarding the two components of total return: Capital appreciation and Dividend Income, if any. Notice the impact that valuation (black line above or below orange earnings justified valuation line - above graph) had on the following performance results.
Assuming an initial investment of $100,000, long-term shareholders Buffalo Wild Wings, Inc. would have received a total annualized ROR of 24.4% versus 3.0% in the S&P for the same period.
The following graph plots the historically normal PE ratio (the dark blue line) correlated with 10-year Treasury note interest. Notice that the current price earnings ratio on this quality company is as low as it has been since 2003.
A further indication of valuation can be seen by examining a company's current price to sales ratio relative to its historical price to sales ratio. The current price to sales ratio for Buffalo Wild Wings Inc is 1.52 which is historically normal.
Looking to the Future
Extensive research has provided a preponderance of conclusive evidence that future long-term returns are a function of two critical determinants:
1. The rate of change (growth rate) of the company's earnings
2. The price or valuation you pay to buy those earnings
Forecasting future earnings growth, bought at sound valuations, is the key to safe, sound, and profitable performance.
The Estimated Earnings and Return Calculator Tool is a simple yet powerful resource that empowers the user to calculate and run various investing scenarios that generate precise rate of return potentialities. Thinking the investment through to its logical conclusion is an important component towards making sound and prudent commonsense investing decisions.
The consensus of 15 leading analysts reporting to Capital IQ forecast Buffalo Wild Wings Inc's long-term earnings growth at 20%. Buffalo Wild Wings Inc has 0% debt to capital. Buffalo Wild Wings Inc is currently trading at a P/E of 24.4, which is slightly above the value corridor (defined by the five orange lines) of a maximum P/E of 24. If the earnings materialize as forecast, Buffalo Wild Wings Inc's True Worth™ valuation would be $157.59 at the end of 2017, which would be a 14.9% annual rate of return from the current price. Although a 14.9% estimated return is attractive, should Buffalo Wild Wings adjust to True Worth™ Value, the possibility is high that the investor could see a slight correction in the price. A P/E of 20 or below would be a more attractive alternative, should earnings estimates are realized.
Earnings Yield Estimates
Discounted Future Cash Flows: All companies derive their value from the future cash flows (earnings) they are capable of generating for their stake holders over time. Therefore, because Earnings Determine Market Price in the long run, we expect the future earnings of a company to justify the price we pay.
Since all investments potentially compete with all other investments, it is useful to compare investing in any perspective company to that of a comparable investment in low risk Treasury bonds. Comparing an investment in Buffalo Wild Wings Inc to an equal investment in 10 year Treasury bonds, illustrates that Buffalo Wild Wings Inc's expected earnings would be 8 times that of the 10 Year T-Bond Interest. (See EYE chart below - Blue Circle). This is the essence of the importance of proper valuation as a critical investing component.
Summary & Conclusions
This report presented essential "fundamentals at a glance" illustrating the past and present valuation based on earnings achievements as reported. Future forecasts for earnings growth are based on the consensus of leading analysts. Although, with just a quick glance you can know a lot about the company, it's imperative that the reader conducts their own due diligence in order to validate whether the consensus estimates seem reasonable or not.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
Disclaimer: The opinions in this document are for informational and educational purposes only and should not be construed as a recommendation to buy or sell the stocks mentioned or to solicit transactions or clients. Past performance of the companies discussed may not continue and the companies may not achieve the earnings growth as predicted. The information in this document is believed to be accurate, but under no circumstances should a person act upon the information contained within. We do not recommend that anyone act upon any investment information without first consulting an investment advisor as to the suitability of such investments for his specific situation. A comprehensive due diligence effort is recommended.