Inflation remains uncomfortably elevated, and that’s a drag on an array of consumer discretionary stocks, including Wingstop (NASDAQ: WING).
Ahead of its July 29 earnings report, shares of the fast-casual wing chain are off 43.5% year to date (as of July 23) and would need to more than triple to reclaim the record high. Analysts expect the Texas-based eatery to post earnings per share (EPS) of $1.02 on sales of $190.2 million. Given the stock’s weak state, if those estimates are missed or the company offers guidance that’s not to investors’ satisfaction, more declines could be in store.
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This fast-food stock has no margin for error, and a lot needs to go right against a challenging consumer backdrop. That’s not lost on Wall Street. On July 23, DA Davidson cut its price target on Wingstop to $200 from $230 while keeping a buy rating.
The new target implies upside of about 48% from the stock’s close on that day, but there’s some bad news. The research firm pared its second-quarter same-store sales forecast to a decline of 6% from a drop of 4%, citing stress on Wingstop’s core lower-income and younger customer base.
For risk-tolerant investors, there may be something to see here. Looking ahead, Wingstop is expanding rapidly, adding new locations across the U.S. Additionally, the stock has some support on Wall Street. Piper Sandler says the stock’s now lengthy decline has created a potentially favorable risk/reward scenario. At the same time, Guggenheim believes the shares can nearly double if the company returns to steady same-store sales growth.
Investors willing to take a flier on earnings may want to evaluate Wingstop’s commentary around its Smart Kitchens and its Club Wingstop loyalty program. Strength in those areas could contribute to a rebound down the road.
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