Shares of Wendy’s (WEN) have soared in the last year. The stock has doubled in value in the last 12 months of trading. The third wheel in the fast food hamburger chain battle is certainly doing well for investors.
How long will the trend continue? At its current lofty valuation there is significant risk here. The company is only expected to make 23 cents per share this year. That’s awfully close to break even or worse. It’s also a low base for growth that might be attractive to aggressive investors that then leave at the first sign of trouble. Analysts expect the company to grow profits next year by 17%, but that’s only to 27 cents per share.
There isn’t much wiggle room here if you ask me. With the stock trading for 38 times 2013 estimated earnings, I would be worried about a sharp correction – or crash diet if you will. Get out before the company releases results as the earnings report is often the time when investors decide to bail.