I sold Buffalo Wild Wings (BWLD) in December of last year at $170 in anticipation of this earnings rut the company is in right now. I knew wing prices wouldn’t be decelerating in price as they had been — they would probably go higher — and that would slow profit growth. And I was right. Last qtr chicken wing prices were 26% higher than the year-ago qtr. So even though sales rose 16%, profits fell 10%. Same store sales rose 3-4% overall, which is good but nothing to write home about.
After earnings hit the stock jumped from $171 to $190. In a day. When I sold BWLD last year I did so thinking I could get back in at a lower price. Then the stock fell to between $150 and $160 earlier in the Summer and I missed out.
One Year Chart
I think BWLD is worth 30x earnings. Analysts consider it a 20% grower, and I feel profits will grow in the low-20% range. 30x earnings is fair. But we are currently in a raging Bull Market and quality growth stocks are getting higher P/Es than I can rationalize. Stocks are high. So BWLD has a 35 P/E.
Now look at Estimates. 54% profit growth coming 2QtrsOut. Looking even further out I see 26% growth 3QtrsOut and 41% 4QtrsOut (check the Earnings Table link below). Profit growth is accelerating, and it looks to be so fast a 35 P/E is rational.
Fair Value
30x earnings puts BWLD’s Fair Value at $168. Had I gotten back in during May or June we’d be set now. But I missed the opportunity.
Sharek’s Take
Buffalo Wild Wings is a must-own growth stock for me, and I sold last year because I felt strongly the stock would go sideways. It did, but now is going up again. With the market teetering on a correction I’ll keep BWLD at the top of my radar and try to get back in if it comes down 10% or so. The dream would be for a correction to the $150-160 level again, but we should take the opportunity at $180 as BWLD has proven to be a 20% grower.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
