Here’s a fun fact: Of all the restaurant stocks in the world, relatively obscure Wingstop (NASDAQ:WING) stock has been the best performer on Wall Street.
By a mile.
Over the past five years, Starbucks (NASDAQ:SBUX) stock has risen 32%. Yum! Brands (NYSE:YUM) stock has risen 50%. Chipotle Mexican Grill (NYSE:CMG) stock has also risen 50%. McDonald’s (NYSE:MCD) stock has risen 100%. Domino’s Pizza (NYSE:DPZ) stock has soared 240%.
Those are great returns. Especially the 240% pop in DPZ stock.
But, all of those returns pale in comparison to what WING stock has done over the past five years.
During that stretch, WING stock has surged 300% higher, making it not just the best performing restaurant stock out there, but also one of the best performing stocks in the whole market.
This red-hot run in WING stock isn’t over. Far from it. Instead, I think that in the long run, Wingstop has a real opportunity to become the next McDonald’s. Buying WING stock today could be like buying MCD stock back in the late 1960s.
To that end, I think WING stock is perhaps the best restaurant stock to buy for long-term investors.
Wingstop Can Be the Next McDonald’s
From where I sit, Wingstop looks like the next McDonald’s.
McDonald’s went from six locations in 1954 to nearly 40,000 restaurants today by doing four simple things.
Selling the right product, at the right price, in the right format, and through the right channel.
That is, McDonald’s sold hamburgers in the 1960s, at a time when burger popularity was soaring nationally because it was seen as a patriotic American symbol amid the Cold War, and because Americans had started to adopt the idea of barbecues in their backyards.
McDonald’s sold those burgers for 15 cents, in a menu that was straightforward.
And the company sold them mostly through drive-thru locations, on the heels of the 1956 Federal Highway Act, which paved the way for America to become highly motorized.
Today, Wingstop is following almost identically — and successfully — in McDonald’s footsteps.
That is, the company is selling the right product, at the right price, in the right format, and through the right channel.
Wingstop sells chicken wings, at a time when health-conscious consumers are pivoting from red meat consumption to higher-protein, less-fatty chicken consumption. Over the past decade, U.S. beef consumption per capita has dropped 5%, while chicken consumption per capita has risen 16%.
Wingstop sell those wings at industry-low prices, and the menu is exceedingly simple.
Most importantly, Wingstop sells its wings mostly through digital orders. Even before the novel coronavirus, more than 40% of the company’s sales were digital. Now, it’s on the heels of a global pandemic that has permanently accelerated consumer adoption of all things digital.
WING Stock Has Tons of Growth Potential
Broadly, Wingstop has all the ingredients to be the next McDonald’s.
That’s exciting news for WING stock, because Wingstop today is essentially where McDonald’s was in the late 1960s.
Wingstop operates just 1,436 restaurants today. McDonald’s had that many restaurants back in the late 1960s.
Wingstop has been growing its store base by 10%-plus per year over the past several years. Management thinks they can sustain 10%-plus unit growth for a lot longer, growing to over 6,000 stores globally at scale.
Sure, that’s a far cry from McDonald’s near 40,000 locations today. But it still represents 4x growth from today’s current base.
Plus, Wingstop’s average unit volumes are just $1.1 million today. That number is rapidly climbing — up 15% last quarter — but is still a far cry from average unit volumes at McDonald’s ($2.8 million) and peer chicken restaurants like Chick-fil-A ($4.2 million) and El Pollo Loco ($1.8 million).
In other words, Wingstop has a visible opportunity to simultaneously rapidly grow its store base and AUVs over the next 10-plus years. That’s the sort of growth profile which could turn Wingstop into a top 10 restaurant brand globally one day — and power WING stock to huge long-term gains.
Momentum Is Building
Impressively — and importantly — management is executing flawlessly against the restaurant chain’s long-term opportunity, and momentum today is building, not slowing.
Just look at last quarter’s numbers.
Same-store sales rose 32% year-over-year. Revenues rose 36%. System-wide sales rose 37%. Restaurant count rose 10%. Gross margins expanded 300 basis points. Operating margins expanded 840 basis points. Earnings per share more than doubled year-over-year.
And that’s all on top of double-digit comparable sales, revenue growth and unit growth in the same quarter one year ago.
In other words, Wingstop is sustaining robust growth at scale.
This is nothing new for the company.
Wingstop has reported 16 consecutive years of positive comparable sales growth … including six years of 10%-plus comparable sales growth. This growth has led to average unit volumes essentially doubling over the past decade. And Wingstop has glided to industry-high 26% operating margins (versus 19% at McDonald’s).
What’s the key to this success?
You have an innovative management team that is relentlessly working to improve the customer experience, smartly expand the footprint and keep costs down.
Specifically, this is a management team which leans heavily into purchase data analytics, digital marketing, and next-generation developments (like voice-activated ordering and carryout lockers) to sustain consistently robust comparable sales growth. It’s also a management team that is hyper-focused on cost mitigation through striking long-term chicken pricing contracts and running a slim labor model thanks to the simple menu.
So long as management continues to do everything right to capitalize on Wingstop’s huge long-term growth opportunity, then WING stock will inevitably power higher.
Wingstop Stock Has Big Upside Potential
At the current WING stock price, Wingstop’s market capitalization is $4.7 billion.
In the long run, I see this as a $20 billion company.
Here’s the math.
McDonald’s has a $150 billion market cap. With 38,695 locations globally. In a mostly franchised model. Imputing a valuation in that mostly franchised model of nearly $4 million per store.
Wingstop operates in a similar franchised model. At scale, if you look at peer chicken QSR AUVs, Wingstop stores should do more in sales than McDonald’s stores. Plus, Wingstop stores have higher unit margins.
Thus, your average Wingstop store, at scale, should be worth more than your average McDonald’s store.
Let’s call it a per-store valuation of $4 million flat. On 6,000-plus locations globally, you’re talking about a $24 billion company.
That’s more than 5x the current valuation.
Needless to say, then, WING stock has huge long-term upside potential.
Bottom Line on WING Stock
WING stock is the best restaurant stock to buy for patient, long-term investors. Valuation and technical friction may cause choppiness in WING stock here and now.
Such friction won’t last. Long term, WING stock is a winner, with multi-bagger return potential.
So, if you’re looking for a restaurant stock to buy and hold for the next five to 10 years, WING stock is your best option.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.