In 2024, restaurant company Wingstop(NASDAQ: WING) did something for the 21st year in a row: Sales went up at domestic restaurants that had been open for at least a year. To be more specific, domestic same-store sales were up a whopping 19.9% year over year, which is a number so good that it's staggering.
To put its growth into perspective, the average Wingstop restaurant location had $1.6 million in annual sales at the end of 2021. At the end of 2024, however, this had grown to an annual average of $2.1 million. That's a massive increase in a short amount of time.
Keep in mind that I'm only talking about Wingstop's domestic growth in restaurants that have been open for at least a year. This doesn't factor in the company's additional growth in international markets or growth from opening new locations. Factoring those things in lifts revenue even higher. The end result is that Wingstop's revenue has tripled in just five years.
As of this writing, Wingstop stock is down roughly 50% from its all-time high, which is its second-largest pullback ever. Given its strong past financial results, this seemed like an opportune moment to consider where Wingstop could be in five years and whether the stock is a good buy today in light of its future possibilities.
How high can Wingstop's business fly?
Wingstop aspires to be in the top 10 largest restaurant chains in the world someday and is opening many new locations annually to reach this goal. The company uses a primarily franchised business model, and these third-party franchisees opened the majority of its 349 new restaurants in 2024.
Wingstop had nearly 2,600 locations at the end of 2024. But how many could it open within the next five years? As it turns out, restaurants are so profitable that franchisees are demanding to open more. Right now, the company has a pipeline of 2,000 new locations, and 95% of these are planned to be opened by existing franchisees.
I wouldn't be surprised if Wingstop could open most of these in the next five years, which means that the company's restaurant base could get almost 80% larger. For what it's worth, even at that scale, it still wouldn't be in the top 10 largest restaurant chains, so management would still be looking to scale further.
Based on this, I believe Wingstop could double its revenue within the next five years. Most of the growth will come from new locations. But same-store-sales growth could provide an additional boost. Granted, it's going to be harder to grow same-store sales as it scales -- new locations could steal sales from existing locations, in theory. That said, its 21-year streak leads me to believe that it will continue to grow same-store sales more often than not.
Herein lies another benefit: When sales per location increase, restaurants usually become more profitable. That's certainly been true for Wingstop. As mentioned, its revenue has tripled over the last five years, but its earnings per share (EPS) have quintupled.
Given the immense demand from franchisees to open new locations and the growing demand from consumers for the food, I believe Wingstop is poised to grow well beyond an average stock over the next five years.
Is Wingstop stock a buy?
There's so much to like about Wingstop, including its consistent growth and its profitability. The stock is consistently popular with investors and has traded at a pricey average price-to-earnings (P/E) ratio of 100 over the last five years. For perspective, the average for the S&P 500 is around 29 -- Wingstop is consistently more than three times more expensive on a relative basis.
However, thanks to its sharp recent pullback, Wingstop stock now trades at 63 times earnings, which is well below its average.
To be sure, Wingstop's valuation is still pricey. But it's not so outrageous in light of its long-term growth potential.
Whenever investors can pick up shares of quality companies at below-average valuations, such as Wingstop stock right now, it's often a good move. It would be different if the company was reaching a saturation point and its growth prospects were poor. However, management believes it can have 6,000 locations worldwide someday and is still building the company to scale to that size. In short, its growth prospects remain spectacular.
Therefore, Wingstop stock does look like a stock to buy today, in my opinion. Investors worried about the valuation or market volatility could choose to dollar-cost average a Wingstop position, systematically buying small batches of shares throughout the year. But whether buying an entire position or nibbling at a position, now looks like a good time to invest in Wingstop's long-term potential.
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