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- For a fast-food chicken wing shop, Wingstop has seen remarkable growth in the past 5 years.
- The restaurant remained resilient during the pandemic and saw its stock peak in March.
- The chain has been able to deliver to customers, franchisees, and shareholders, analyst says.
Who knew chicken wings could be so lucrative?
In the past five years, Wingstop, which is listed on the Nasdaq, saw its stock grow 380%, from $72.36 in March 2019 to $348 as of Thursday.
Not the wildest 5-year rally by any means, but those are some eye-catching gains for a chicken wing-slinging, fast-food chain.
Danilo Gargiulo, senior analyst of restaurants at AllianceBernstein, which is bullish on the Wingstop stock, told Business Insider that a lot of factors have gone right for the chain in the past several years and that its performance doesn't come as a surprise.
"Focusing on the chicken category has been a winning story," Gargiulo said in an interview.
A spokesperson for Wingstop did not respond to a request for comment.
Wingstop's growth
Wingstop, which was founded in Garland, Texas, in 1994, is in its infancy relative to more storied brands such as McDonald's. Still, the chicken wing shop has entered a league of a handful of chain restaurants that have delivered value to its customers, franchisees, and shareholders, Gargiulo said.
"Typically in a restaurant chain, something, somewhere, breaks down when you're scaling," he said.
For customers, Wingstop has been meeting growing consumer demands for chicken — a food category that has grown twice as fast as other categories within the fast food or limited-service restaurant space, according to Gargiulo.
The chicken is ripe for easier innovation, Gargiulo said, because restaurants like Wingstop can offer variety through its sauces, including new hot sauces, which are experiencing their own moment with Gen Z.
2020 hindsight
Winsgtop remained resilient during the peak of the pandemic, which saw 10% of all restaurants in the US close just between 2020 and 2021. Fast food chains were no exception.
Part of its strength was because the chicken wing chain already had a delivery operation in place at a time when takeout orders increased, Gargiulo said.
"When the delivery trend became more prominent during the pandemic, Wingstop didn't have to change anything," he said. "They already had an operation set up to be successful."
In 2022, Wingstop partnered with Uber Eats and launched the chicken sandwich amid the fast-food chicken sandwich wars, which were catalysts for the restaurant's growth that year, the AllianceBernstein analyst said.
In 2023, the company saw $460.1 million in revenue — a 28.7% increase from the 2022 fiscal year.
"The fundamentals of the brand are starting to accelerate independent of any actions or specific actions taken," he said, pointing to the company's national ad campaigns that have become more prominent during the sporting seasons.
Wingstop is trying to expand beyond its core consumers, which has historically "skewed" toward low-income consumers as well as the Hispanic and Black demographic, Gargiulo said.
Will wings continue to fly?
Gargiulo is bullish, as are other analysts, on Wingstop, but he underscores: "You have to take a long view."
In February, Wingstop's stock fell briefly after it reported slower growth in the 2023 fourth quarter compared to previous quarters of that year, even as the chain reported better than expected results, Investor's Business Daily reported, suggesting there are high expectations for the restaurant.
It's also difficult to look at other more storied fast food restaurants, such as McDonald's, which is trading at $282.63 as of Friday, and compare that to Wingstop, Gargiulo said.
McDonald's has "different capabilities," the analyst said, pointing to the chain's drive-thru layout and breakfast menu.
If he had to compare, Gargiulo would look at Domino's Pizza. The pizza chain, which is trading at $458.42 as of Friday, offers a similar proprietary platform with its app and has been able to deliver value to customers, franchisees, and shareholders, he said.
But overall, there are very few fast food restaurants that look and operate like Wingstop.
"Wingstop is in a category of one," Gargiulo said. "There's just no comparison."
Gargiulo said one would have to take a "fundamental view" that the restaurant will experience sustained growth of free cash flow — or money a business has left over minus capital expenses — over a long period of time.
"I'm talking about 15, 20 years," he said.
Wingstop said that it plans to grow its operation to 7,000 stores globally, although it hasn't specified a timeline for reaching that goal.
"I think they can really capitalize on their strengths over a longer period of time and potentially reach more than that," Gargiulo said.