We recently published a list of 11 Best Fast Food Stocks To Invest In Right Now. In this article, we are going to take a look at where Wingstop Inc. (NASDAQ:WING) stands against other best fast food stocks.
Fast food is integral to American culture and remains popular among adults and children. According to a report by the CDC, one-third of Americans consume fast food every day, while 83% of the country’s families dine out at a fast food restaurant at least once a week. Around 45% of the population aged between 20-39 consume fast food every day, while the indulgence rate of those between 40-59 years of age is slightly lower at 37.7%. On the other hand, 34% of children regularly eat fast food daily.
READ ALSO: 7 Cheap Food Stocks to Buy According to Analysts.
However, an increasing number of Americans are beginning to pull down on their consumption and eating less fast food per week due to high prices. A survey by Lending Tree in May 2024 highlighted that about 78% of the citizens consider fast food a ‘luxury’ after rampant inflation in the country has forced Americans to reassess their spending habits. Surge pricing in restaurants has also added to their worries, with about 72% confessing that they would prefer having fast food during discount hours.
Over the past year, menu prices have risen considerably in the US across the wider restaurant industry, driven by increased commodity and supply chain costs. This has boosted consumer desire in the country to eat at home. Carnegie Investment Counsel’s portfolio manager, Razmig Pounardjian, stated the following to Reuters in May:
“The lack of value offers has opened up consumers to shop for different options whether it be other (chains) or the grocery stores.”
Despite challenges, the American restaurant industry remains resilient, primarily because it adapts well to changing consumer habits. The National Restaurant Association has forecast sales to top the $1 trillion mark in 2024 for the first time. It also expects the industry to create 200,000 new jobs, citing what is generally a strong demand from Americans to eat at restaurants.
A restaurant ETF issued by AdvisorShares, which invests exclusively in the restaurant and food industry has gained 18.32% YTD, outperforming the broader market by over six percentage points, as of the close of October 31. The Fed rate cuts will likely help restaurant stocks as they would to the broader market. The low cost of borrowing will boost consumer spending and ease the burden on restaurant owners, allowing them to go ahead with their expansion plans.
In September this year, the Federal Reserve announced a 50-basis point rate cut – the first since March 2020 – to lower the range of interest rates from 4.75% to 5%. Details emerging from the minutes of the September meeting disclosed a ‘substantial majority’ of central bankers backing the cut, which has raised optimism among investors for further cuts ahead in the November meeting.
Another encouraging recent trend has been the downturn in the country’s inflation, which dropped to 2.4% in September and is inching toward the Federal Reserve’s goal of a two percent annual rate.
Our Methodology
We used Finviz’s restaurant industry screener to sample stocks for this article and then identified the companies that dealt with fast food. Among them, we picked the top 11 companies with the highest number of hedge funds having stakes in them. We ranked them in ascending order of hedge fund holders in each company. Data on hedge funds was sourced from Insider Monkey’s database of 912 hedge funds for the second quarter of 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Wingstop Inc. (NASDAQ:WING)
Number of Hedge Fund Holders: 31
Wingstop Inc. (NASDAQ:WING) is an American restaurant chain that sells chicken wings. According to CNBC, around 98% of its restaurants are operated by independent franchisees. It is one of the best fast food stocks to invest in right now, with 31 hedge funds tracked by Insider Monkey holding stakes in the company.
On October 30, Wingstop Inc. (NASDAQ:WING) announced financial results for the fiscal third quarter of 2024. Revenue totaled $162.5 million, growing 38.8% year-over-year. Royalty revenue, franchise fee, and other revenue expanded by $21.2 million in Q3, driven by same-store sales growth of 20.9% and net franchise restaurant openings since last year.
The surge in same-store sales, coupled with around 350 new restaurant openings over the last 12 months, has resulted in system-wide sales growing by 39%. Adjusted EBITDA was posted at $53.7 million, up 39.5% year-over-year. EPS was logged at 88 cents per share, translating to a 35.4% increase from the same quarter in 2023.
While talking to CNBC in late August, CEO Michael Skipworth stated that Wingstop Inc. (NASDAQ:WING) has leaned into live sports advertisements, which analysts at the business news channel believe is one of the reasons why the company is outpacing its competitors in the industry, as chicken wings remain a popular snack with watching live sports.
Moreover, through effective supply chain strategies, Wingstop Inc. (NASDAQ:WING) has also managed to control food costs despite commodity price volatility, offering brand partners predictability and strengthening unit economics. The company’s unit growth for Q3 was also an impressive 17%, helped by 100 new restaurant openings in the third quarter. It now expects to open a total of between 320 to 330 net new restaurants for the full year, offering tremendous opportunities for revenue growth ahead.
Wall Street analysts have a consensus Buy rating on the stock and anticipate a median share price upside potential of 28%.
Overall, WING ranks 5th among the 11 best fast food stocks to invest in right now. While we acknowledge the potential of fast food companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than WING but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
