by Serge Berger | March 12, 2012 12:15 pm
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.
College basketball fans across the land will again crowd sports bars to full capacity as March Madness gets under way this week. And Buffalo Wild Wings (NASDAQ:BWLD) is sure to be the targeted place of choice for hungry and thirsty sports fans. As such, I thought I’d look a little closer at the stock.
It’s no secret that BWLD has been on a relentless tear so far in 2012, up just about 34% to date — and that’s after a 50% rally in 2011.
Looking at the fundamentals, we clearly see a growth story in the stock. Unit and revenue growth are well above 10% — at 14% and 24%, respectively, on a compound annual growth rate basis. However, that type of data is backward-looking, and the question is whether the company can continue to surprise to the upside with its growth forecast.
Valuation-wise, the stock trades at a solid premium compared to its competitors, such as Darden Restaurants (NYSE:DRI) — Darden trades at a P/E of 15.74, whereas BWLD trades at 31.84. The median P/E for the group is around 17.5.
One potential headwind for BWLD going forward could be the price of chicken wings, which albeit historically volatile did increase 37% in 2011 and already 15% so far in 2012. Depending on their hedging strategy and ability to pass costs along to consumers, this rise in input cost might take a while to hit the bottom line. However, input cost inflation is a problem for many restaurants.
Even food retailer Whole Foods (NASDAQ:WFM) in its last earnings call highlighted the surge in the price of beef and other inflationary signals in food.
Here’s a look at the price of USDA chicken wings:
Note how the orderly uptrend from 2008 to 2011 turned into a vertical leap in 2012 on the weekly chart of BWLD:
On the daily chart, the break above the $71 level came after its blowout earnings in early February, which left a big gap below the market. Currently, BWLD is consolidating well above the gap, and a break above $90 might allow for more upside.
Much like the broader market, however, the stock is overbought on an intermediate-term basis, and the negative divergence in oscillators confirm such. A break below $84 might lead the stock to $80 and possibly down to the $70 level.
As of this writing, Serge Berger did not hold a position in any of the aforementioned securities.
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