Wingstop’s Stock Just Got Fried… Is Rick Ross’s Wing Empire Losing Its Flavor?

Wingstop, everyone’s favorite wing chain (and a prized investment in Rick Ross’s empire), just gave Wall Street some news spicier than its Atomic sauce. After a year of record-breaking growth, Wingstop’s stock evaporated over 21% in a single day. What went from a high-flying growth story is suddenly showing cracks, and investors are trying to figure out: Is this a buying opportunity, or is it time to move on from the hype? (I got you covered.)

Wingstop’s growth story has been impressive, to say the least. The company posted a 38.8% jump in revenue, hitting $162.5 million (by just enough to keep analysts from fully flipping out). Same-store sales, a key measure for any restaurant chain, grew 20.9% year-over-year. In fast food, that kind of growth is rare air (especially when giants like McDonald’s are barely moving the needle). Wingstop is in a class of its own, somehow still finding people who haven’t tried lemon pepper wings.

Their expansion story is no less impressive. They opened 359 new locations, bringing their global total to 2,458. Their franchise-heavy model shifts a lot of costs to franchisees, which lets them grow like wildfire without footing the entire bill themselves (genius, right?).

For all the expansion and sales gains, profits are looking a bit… crispy. Earnings per share (EPS) came in at $0.88, just shy of Wall Street’s $0.95 target. Doesn’t sound too bad? Well, when you’re trading at a price-to-earnings (P/E) ratio of 60, you’d better nail those targets. Investors are paying a premium for Wingstop’s growth, and even a slight miss led to a 21% drop, as if Wingstop announced a tofu-only menu.

This isn’t Wingstop’s first brush with controversy. Earlier this year, the brand was hit hard by the press after reports surfaced about some of Rick Ross’s franchised Wingstop locations being fined by the Department of Labor for labor violations, including allegations of underpaying employees and deducting uniform costs from paychecks. Although Wingstop corporate wasn’t implicated, and Ross covered the fines, these issues highlight some of the operational challenges that come with rapid expansion through franchising.

So, is this dip a buying opportunity? Baird’s David Tarantino seems to think so, seeing this as a prime entry point for long-term investors. He’s betting on Wingstop’s fast-growing franchise model and continued demand for quick-service wings. Meanwhile, Citi’s Jon Tower is a bit more cautious, suggesting the crash could draw in some bargain hunters but advising investors to stay aware of potential volatility.

Oh and the fundamentals still look solid. They’ve got a fast-growing franchise model, same-store sales growth that makes other fast-food chains jealous, and a brand that stands out in the market. They’re not McDonald’s level yet, but they’re climbing fast in this “modern fast food” space that’s somewhere between fast food and sit-down dining, with a lot more flair (and flavor).

However, Wingstop’s price-to-earnings (P/E) ratio is still around 60, meaning the stock is priced much higher than traditional fast-food giants. This makes it more sensitive to fluctuations. Any missed expectations can lead to quick sell-offs, as we saw this quarter. Only time will tell if buying Wingstop after the dip is a trick or treat.

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Stock.News has positions in McDonald’s and Wingstop mentioned in article.