April 20, 2021
4 minutes of reading
This story originally appeared on MarketBeat
On March 31, after the bell, Wingstop (NASDAQ: WING) pre-announced its first quarter results; sales blew expectations and the stock soared 6.8% on April 1. In the 11 sessions since then, Wingstop has been trading in a very narrow range.
The lack of volatility is unlikely to continue based on recent history; Wingstop’s stock has fluctuated 20 points, becoming a habit in the past 8 months.
So, how should investors trade Wingstop in the context of instability?
To answer that question, let’s start by delving into the first quarter preliminary numbers.
Wingstop’s first quarter sales were spectacular
The pandemic has forced countless restaurants to open, but business is booming for Wingstop. There’s never a doubt that the Wingstop will produce 17order Year of consecutive domestic same-store sales growthBut some people fear that the speed of the wings will slow down. However, those concerns were not materialized when Wingstop nearly doubled its same store sales growth rate – 11.1% for the whole of 2019 and 21.4% for the whole 2020.
Wingstop continued this momentum in its first quarter, with local similar store sales increasing 20.7% YoY – much higher than the consensus estimate of 13 growth, 7%.
Once again, Wingstop’s strong online presence paid off; Digital sales increased 63.6% yoy in the first quarter. The wing chain’s online presence comes as no surprise to the pandemic – Digital sales account for about 40% of total sales before the boom started – but digital sales now make up more than 60% of Wingstop sales.
That percentage drops as more people get vaccinated and the coronavirus restrictions are lifted, but Wingstop’s customers are clearly satisfied with the company’s digital service. So the percentage is unlikely to return to 40%. Somewhere in the 50-55% range sounds like a fair expectation. And at the same time, Wingstop dinner sales – along with every other restaurant’s sales – will recover.
But back in the first half, the question was, why did Wingstop beat? And what does it mean?
Some pointed to the Super Bowl and NCAA. The mindset is that for people stuck at home, they choose to order from companies with great delivery infrastructure, such as Wingstop, instead of their local stores. That argument has some commendable points, but it was pretty clear ahead of time and may have been put into expectation.
Wingstop’s Valentine’s Day Promotion, on the other hand, may have been omitted. The chain has turned to modern trust-building advertising to build its brand. Wall Street doesn’t always appreciate the effectiveness of those types of marketing tactics for their hard-to-quantify benefits, but they often work quite effectively.
That promotion probably doesn’t take the whole beat, however. Or even most of them. The Wingstop may exceed expectations mainly because people are reluctant to eat outside of their home. Yes, millions of Americans have been vaccinated, but people are still required to wear a mask and be socially out of place. Even if some The restaurant is increasing capacity, people still have the ability to choose door-to-door delivery (Wingstop).
We’ll eventually return to pre-pandemic life, but at the same time, the longer we live with restrictions (self-imposed or imposed by the government), the easier it is for the Wingstop to establish lasting domination.
How should you play Wingstop?
Wingstop is scheduled to release its first full quarter release on May 6. But we don’t know what will happen?
Even though we have the sales, the Wingstop isn’t even profitable range for earnings in preliminary releases. The sales numbers will clearly drive earnings expectations, but there’s still a lot of mystery surrounding the margins. Anything can happen, but there’s no reason to expect more surprises – one way or another.
The Wingstop has great long-term prospects, but with such a volatile stock it’s important to consider short-term entry points. As stated earlier, stocks have been trading in a very narrow range recently. Well, they did just that using both the 50-day and 200-day moving averages.
This seems to be a “next move will win” situation. Look for a strong breakout above $ 140 before you consider a WING stock.
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