Intrinsic value of Wingstop - WING

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$29.72

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$29.72

 
Intrinsic value

$5.45

 
Up/down potential

-82%

 
Rating

str. sell

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of WING stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2016), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.9

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2016(a)
   2017
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  16.67
  16.70
  15.53
  14.48
  13.53
  12.68
  11.91
  11.22
  10.60
  10.04
  9.53
  9.08
  8.67
  8.30
  7.97
  7.68
  7.41
  7.17
  6.95
  6.76
  6.58
  6.42
  6.28
  6.15
  6.04
  5.93
  5.84
  5.76
  5.68
  5.61
  5.55
Revenue, $m
  91
  106
  123
  140
  159
  180
  201
  224
  247
  272
  298
  325
  353
  383
  413
  445
  478
  512
  548
  585
  623
  663
  705
  748
  793
  840
  890
  941
  994
  1,050
  1,108
Variable operating expenses, $m
 
  32
  36
  41
  46
  51
  56
  62
  68
  75
  82
  84
  91
  99
  107
  115
  124
  132
  142
  151
  161
  171
  182
  193
  205
  217
  230
  243
  257
  271
  287
Fixed operating expenses, $m
 
  36
  37
  38
  39
  40
  41
  42
  43
  44
  45
  46
  47
  48
  49
  51
  52
  53
  55
  56
  57
  59
  60
  62
  63
  65
  67
  68
  70
  72
  73
Total operating expenses, $m
  62
  68
  73
  79
  85
  91
  97
  104
  111
  119
  127
  130
  138
  147
  156
  166
  176
  185
  197
  207
  218
  230
  242
  255
  268
  282
  297
  311
  327
  343
  360
Operating income, $m
  29
  38
  50
  62
  75
  89
  104
  120
  136
  154
  172
  195
  215
  235
  257
  279
  302
  326
  352
  378
  405
  433
  462
  493
  525
  558
  593
  629
  667
  707
  748
EBITDA, $m
  32
  45
  57
  69
  83
  97
  113
  129
  146
  164
  182
  202
  222
  243
  265
  288
  312
  337
  363
  389
  417
  446
  477
  508
  541
  575
  611
  649
  688
  728
  771
Interest expense (income), $m
  5
  6
  3
  4
  5
  6
  6
  7
  8
  9
  10
  12
  13
  14
  15
  17
  18
  19
  21
  22
  24
  26
  28
  29
  31
  33
  35
  37
  40
  42
  44
Earnings before tax, $m
  25
  32
  47
  58
  70
  84
  98
  112
  128
  144
  161
  184
  202
  221
  242
  263
  284
  307
  331
  355
  381
  407
  435
  464
  494
  525
  558
  592
  628
  665
  704
Tax expense, $m
  10
  9
  13
  16
  19
  23
  26
  30
  35
  39
  44
  50
  55
  60
  65
  71
  77
  83
  89
  96
  103
  110
  117
  125
  133
  142
  151
  160
  169
  180
  190
Net income, $m
  15
  24
  34
  42
  51
  61
  71
  82
  93
  105
  118
  134
  148
  162
  176
  192
  208
  224
  241
  259
  278
  297
  317
  338
  360
  383
  407
  432
  458
  485
  514

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  4
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  112
  126
  146
  167
  189
  213
  239
  265
  293
  323
  354
  386
  419
  454
  490
  528
  567
  608
  650
  694
  739
  787
  836
  888
  941
  997
  1,055
  1,116
  1,179
  1,246
  1,315
Adjusted assets (=assets-cash), $m
  108
  126
  146
  167
  189
  213
  239
  265
  293
  323
  354
  386
  419
  454
  490
  528
  567
  608
  650
  694
  739
  787
  836
  888
  941
  997
  1,055
  1,116
  1,179
  1,246
  1,315
Revenue / Adjusted assets
  0.843
  0.841
  0.842
  0.838
  0.841
  0.845
  0.841
  0.845
  0.843
  0.842
  0.842
  0.842
  0.842
  0.844
  0.843
  0.843
  0.843
  0.842
  0.843
  0.843
  0.843
  0.842
  0.843
  0.842
  0.843
  0.843
  0.844
  0.843
  0.843
  0.843
  0.843
Average production assets, $m
  56
  65
  75
  86
  97
  110
  123
  136
  151
  166
  182
  198
  216
  233
  252
  271
  292
  312
  334
  357
  380
  405
  430
  456
  484
  513
  543
  574
  606
  641
  676
Working capital, $m
  -6
  -7
  -8
  -9
  -11
  -12
  -13
  -15
  -16
  -18
  -20
  -21
  -23
  -25
  -27
  -29
  -32
  -34
  -36
  -39
  -41
  -44
  -47
  -49
  -52
  -55
  -59
  -62
  -66
  -69
  -73
Total debt, $m
  151
  77
  95
  114
  134
  156
  179
  203
  228
  255
  282
  311
  341
  373
  405
  439
  474
  511
  549
  588
  629
  672
  717
  763
  811
  861
  914
  968
  1,025
  1,085
  1,147
Total liabilities, $m
  186
  113
  131
  150
  170
  192
  215
  239
  264
  291
  318
  347
  377
  409
  441
  475
  510
  547
  585
  624
  665
  708
  753
  799
  847
  897
  950
  1,004
  1,061
  1,121
  1,183
Total equity, $m
  -75
  13
  15
  17
  19
  21
  24
  27
  29
  32
  35
  39
  42
  45
  49
  53
  57
  61
  65
  69
  74
  79
  84
  89
  94
  100
  106
  112
  118
  125
  131
Total liabilities and equity, $m
  111
  126
  146
  167
  189
  213
  239
  266
  293
  323
  353
  386
  419
  454
  490
  528
  567
  608
  650
  693
  739
  787
  837
  888
  941
  997
  1,056
  1,116
  1,179
  1,246
  1,314
Debt-to-equity ratio
  -2.013
  6.140
  6.530
  6.840
  7.100
  7.310
  7.490
  7.640
  7.770
  7.880
  7.980
  8.070
  8.140
  8.210
  8.270
  8.320
  8.360
  8.410
  8.450
  8.480
  8.510
  8.540
  8.570
  8.590
  8.620
  8.640
  8.660
  8.680
  8.690
  8.710
  8.730
Adjusted equity ratio
  -0.731
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100
  0.100

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  15
  24
  34
  42
  51
  61
  71
  82
  93
  105
  118
  134
  148
  162
  176
  192
  208
  224
  241
  259
  278
  297
  317
  338
  360
  383
  407
  432
  458
  485
  514
Depreciation, amort., depletion, $m
  3
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  7
  7
  8
  8
  9
  10
  10
  11
  12
  13
  13
  14
  15
  16
  17
  18
  19
  20
  21
  23
Funds from operations, $m
  26
  30
  41
  50
  59
  69
  80
  91
  103
  115
  128
  141
  155
  169
  185
  201
  217
  235
  252
  271
  291
  311
  332
  354
  377
  400
  425
  451
  478
  507
  536
Change in working capital, $m
  4
  -1
  -1
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
Cash from operations, $m
  22
  31
  42
  51
  60
  71
  81
  93
  104
  117
  130
  142
  157
  171
  187
  203
  219
  237
  255
  274
  293
  313
  335
  357
  380
  403
  428
  455
  482
  510
  540
Maintenance CAPEX, $m
  0
  -2
  -2
  -2
  -3
  -3
  -4
  -4
  -5
  -5
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -10
  -10
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -17
  -18
  -19
  -20
  -21
New CAPEX, $m
  -2
  -9
  -10
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -17
  -17
  -18
  -19
  -19
  -20
  -21
  -22
  -23
  -23
  -24
  -25
  -26
  -28
  -29
  -30
  -31
  -33
  -34
  -36
Cash from investing activities, $m
  -2
  -11
  -12
  -13
  -15
  -15
  -17
  -18
  -19
  -20
  -22
  -23
  -24
  -25
  -27
  -27
  -29
  -31
  -32
  -34
  -35
  -37
  -38
  -40
  -43
  -45
  -47
  -49
  -52
  -54
  -57
Free cash flow, $m
  20
  20
  30
  38
  46
  55
  65
  75
  85
  97
  109
  120
  133
  146
  160
  175
  190
  206
  223
  240
  258
  276
  296
  316
  337
  359
  381
  405
  430
  456
  483
Issuance/(repayment) of debt, $m
  56
  -70
  18
  19
  20
  22
  23
  24
  25
  26
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  44
  46
  48
  50
  52
  55
  57
  60
  62
Issuance/(repurchase) of shares, $m
  0
  138
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  56
  68
  18
  19
  20
  22
  23
  24
  25
  26
  28
  29
  30
  31
  33
  34
  35
  37
  38
  40
  41
  43
  44
  46
  48
  50
  52
  55
  57
  60
  62
Total cash flow (excl. dividends), $m
  76
  -50
  47
  57
  66
  77
  87
  99
  111
  123
  136
  149
  163
  178
  193
  209
  226
  243
  261
  279
  299
  319
  340
  362
  385
  409
  434
  460
  487
  516
  546
Retained Cash Flow (-), $m
  65
  -88
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
Prev. year cash balance distribution, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  0
  45
  54
  64
  74
  85
  96
  108
  120
  133
  146
  160
  174
  189
  205
  222
  239
  256
  275
  294
  314
  335
  357
  380
  403
  428
  454
  481
  509
  539
Discount rate, %
 
  14.30
  15.02
  15.77
  16.55
  17.38
  18.25
  19.16
  20.12
  21.13
  22.18
  23.29
  24.46
  25.68
  26.96
  28.31
  29.73
  31.22
  32.78
  34.41
  36.14
  37.94
  39.84
  41.83
  43.92
  46.12
  48.42
  50.85
  53.39
  56.06
  58.86
PV of cash for distribution, $m
 
  0
  34
  35
  35
  33
  31
  28
  25
  21
  18
  15
  12
  9
  7
  5
  3
  2
  2
  1
  1
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Current shareholders' claim on cash, %
  100
  50.0
  50.0
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Wingstop Inc., together with its subsidiaries, franchises and operates restaurants under the Wingstop brand name. Its restaurants offer cooked-to-order, hand-sauced, and tossed chicken wings. As of January 26, 2017, the company operated 1,000 company-owned and franchised restaurants in the United States and internationally. Wingstop Inc. was founded in 1994 and is headquartered in Dallas, Texas.

FINANCIAL RATIOS  of  Wingstop (WING)

Valuation Ratios
P/E Ratio 57
Price to Sales 9.4
Price to Book -11.4
Price to Tangible Book
Price to Cash Flow 38.8
Price to Free Cash Flow 42.7
Growth Rates
Sales Growth Rate 16.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 0%
Cap. Spend. - 3 Yr. Gr. Rate 0%
Financial Strength
Quick Ratio 1
Current Ratio 0.2
LT Debt to Equity -196%
Total Debt to Equity -201.3%
Interest Coverage 6
Management Effectiveness
Return On Assets 15.5%
Ret/ On Assets - 3 Yr. Avg. 11.6%
Return On Total Capital 18.6%
Ret/ On T. Cap. - 3 Yr. Avg. 13.7%
Return On Equity -35.3%
Return On Equity - 3 Yr. Avg. -67.5%
Asset Turnover 0.8
Profitability Ratios
Gross Margin 72.5%
Gross Margin - 3 Yr. Avg. 71.5%
EBITDA Margin 36.3%
EBITDA Margin - 3 Yr. Avg. 31.4%
Operating Margin 31.9%
Oper. Margin - 3 Yr. Avg. 28.1%
Pre-Tax Margin 27.5%
Pre-Tax Margin - 3 Yr. Avg. 23%
Net Profit Margin 16.5%
Net Profit Margin - 3 Yr. Avg. 14.2%
Effective Tax Rate 40%
Eff/ Tax Rate - 3 Yr. Avg. 37.7%
Payout Ratio 553.3%

WING stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the WING stock intrinsic value calculation we used $91 million for the last fiscal year's total revenue generated by Wingstop. The default revenue input number comes from 2016 income statement of Wingstop. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our WING stock valuation model: a) initial revenue growth rate of 16.7% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 14.3%, whose default value for WING is calculated based on our internal credit rating of Wingstop, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Wingstop.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of WING stock the variable cost ratio is equal to 30.8%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $35 million in the base year in the intrinsic value calculation for WING stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 4.1% for Wingstop.

Corporate tax rate of 27% is the nominal tax rate for Wingstop. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the WING stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for WING are equal to 61%.

Life of production assets of 33.5 years is the average useful life of capital assets used in Wingstop operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for WING is equal to -6.6%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $-75 million for Wingstop - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 29.133 million for Wingstop is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Wingstop at the current share price and the inputted number of shares is $0.9 billion.


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COMPANY NEWS

▶ Netflix Is No 'House of Cards'; Feast On Wingstop: Analysts   [May-23-17 04:19PM  Investor's Business Daily]
▶ Wingstop Stock Rises After Goldman Upgrade   [10:58AM  TheStreet.com]
▶ European Market Next Up on the Menu for Wingstop   [May-10-17 08:15AM  GlobeNewswire]
▶ ETFs with exposure to Wingstop, Inc. : May 9, 2017   [May-09-17 05:12PM  Capital Cube]
▶ Shake Shack Shakes Off Same-Store Shock As Starbucks Hunts More Unicorns   [May-05-17 04:06PM  Investor's Business Daily]
▶ Why Wingstop Inc Stock Popped Today   [02:07PM  Motley Fool]
▶ Wingstop beats Street 1Q forecasts   [05:03AM  Associated Press]
▶ Wingstop shares up 12% after earnings beat   [May-04-17 05:30PM  MarketWatch]
▶ Retail And E-Commerce News And Stocks To Watch   [03:19PM  Investor's Business Daily]
▶ Runaway Chicken Wing Prices Hurting Food Chains   [May-02-17 03:05PM  Investopedia]
▶ Wingstop to Open 30 Locations in Malaysia   [Apr-25-17 08:15AM  GlobeNewswire]
▶ Wingstop Tests Delivery in Las Vegas   [Apr-18-17 08:15AM  GlobeNewswire]
▶ And the No. 1 Stock-Fund Manager This Time IsShhhh   [Apr-10-17 12:11AM  The Wall Street Journal]
▶ And the No. 1 Stock-Fund Manager This Time IsShhhh   [Apr-09-17 11:23PM  The Wall Street Journal]
▶ WINGSTOP: Chicken wings are hurting our business   [Mar-03-17 02:19PM  Business Insider]
▶ Wingstop Inc. to Present at the 19th Annual ICR Conference   [Jan-05-17 08:00AM  GlobeNewswire]
▶ Is Fox Factory Holding Corp (FOXF) Going to Burn Its Backers?   [Dec-13-16 03:30AM  at Insider Monkey]
▶ Hedge Funds Are Betting On Wingstop Inc (WING)   [Dec-12-16 09:59AM  at Insider Monkey]
Stock chart of WING Financial statements of WING Annual reports of WING
Valuation of Stocks

The paper VALUATION OF STOCKS: The Quest for Intrinsic Value provides a detailed description of our valuation model and discloses the calculation algorithm.

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