This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Buffalo Wild Wings: Be Cautious With Your Expectations


In other words, the recent 5% price decline is minor in comparison to where the company has historically traded. Now, this is not to suggest that the company's prospects are underwhelming -- quite the contrary. However, I would like to use this article to indicate what assumptions one is making when looking to initiate a partnership with Buffalo Wild Wings today.

Below I have included the Estimated Earnings and Return Calculator for Buffalo Wild Wings. It's important to underscore the idea that this is simply a calculator, but it does provide a solid baseline for how analysts are presently viewing the company.

Specifically, it indicates that 20 analysts reporting to Standard & Poor's Capital IQ come to consensus earnings estimates of $3.63 and $4.42 per share for the upcoming fiscal years, and an estimated earnings growth rate in the intermediate term of 20%. In addition, if these forecasts come to fruition and Buffalo Wild Wings trades at 20 times earnings, in five years this would indicate a 4.5% total estimated annual return.

Obviously a higher expected growth rate of P/E ratio would lead to a higher expected return, but it's important to remain prudent in these expectations.

For instance, while the company could grow faster than 20%, it certainly wouldn't be cautious to plan on 30% growth. After-all, the company was unable to do that in the last five years when it was much smaller and management has indicated a target growth rate goal of 20% for next year. Further, while a P/E near 40 in the future might indicate performance results that roughly tracked business results, this assumption certainly isn't erring on the side of caution.

Overall Buffalo Wild Wings appears to be a very strong, fast-growing company with great potential prospects. However, today's valuation leaves little in the way of a "margin of safety."

The company must grow quite fast -- by 20% or more -- and command a P/E ratio well above the market to make for a compelling investment. This is not to suggest that it can't happen, but rather to indicate that current prices reflect this significant growth expectation in the future. As always, I recommend that the reader conduct his or her own thorough due diligence.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

3 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
BWLD $158.64 0.00%
AAPL $128.70 0.00%
FB $78.81 0.00%
GOOG $540.78 0.00%
TSLA $230.51 0.00%

Markets

DOW 18,070.40 +46.34 0.26%
S&P 500 2,114.49 +6.20 0.29%
NASDAQ 5,016.9290 +11.5380 0.23%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs