Wingstop, the chicken wing chain, might have been the hottest name during the depths of the pandemic. People stuck at home ordered a ton of chicken wings for their families. Sales surged so much that virtual brand copycats emerged almost daily.
The company’s enterprise valuation went along with it. At the end of 2019, Wingstop’s enterprise valuation was $2.8 billion, according to data from the financial services site Sentieo. By the end of 2021 it was $5.7 billion.
As a multiple of EBITDA, or earnings before interest, taxes, depreciation and amortization, that valuation was even more sky-high, soaring from 49.8 times EBITDA to 63.
It’s no longer in that stratosphere. Wingstop’s stock price is down 61% since its 52-week high last year. And its enterprise valuation, or the value that would be required to take it private, has fallen by about $2.8 billion to $2.7 billion. It now has a multiple of 26 times estimated 2022 earnings.
Wingstop is hardly alone. Investors have been increasingly fearful of the impact of inflation on the economy, and they have hit restaurants especially hard. In the process, Wall Street has largely reset industry valuations, which impacts overall valuations for the industry at large.
Best-performing restaurant stocks this year
Source: Yahoo! Finance, Restaurant Business
Restaurants are down more than 46%, on average, from their 52-week high. By contrast, the S&P 500 Index is down 24% from its 52-week high last year, as of market close on Friday. Most restaurant stocks are down at least 20% from those highs and the best performance based on that metric has been McDonald’s, which is down 13%.
Much of that decline has happened this year. Restaurant stocks are down 32% so far in 2022 and only one stock, McDonald’s Latin American franchisee Arcos Dorados Holdings, is up for the year. Only five stocks are up since May, when the median restaurant stock is down more than 16%.
All sectors in the industry are down by more than the S&P 500, which is down 23% so far in 2022. Quick-service chains’ median decline is 26% so far this year. Fast-casuals are down 39% and casual dining chains are down 30%.
Worst-performing restaurant stocks this year
Source: Yahoo! Finance, Restaurant Business
The stock market has reset valuations, and at least some of this has corrected some incredible valuations handed by some publicly traded companies. Consider Chipotle Mexican Grill, whose enterprise valuation is down about $14 billion since the end of the year. The company’s enterprise valuation at the end of 2021 was nearly 42 times EBITDA. That valuation is down to 23.
Or maybe consider Dutch Bros, whose stock skyrocketed to more than $80 a share at one point, falling back to earth some at $51 at the end of 2021. That gave it a valuation multiple of a ridiculous 104.5. It’s down now to 64. In many respects, the downturn has simply taken some of the helium on the valuations being placed on many publicly traded restaurants.
The reset has come as the economy is facing a likely downturn, brought upon by higher interest rates with a significant contribution from higher prices for gas, food and everything else.
And restaurants have seen their margins take a substantial hit as the cost of both labor and food have soared.
At the same time, many investors have flocked toward safer names, or at least companies believed able to more easily withstand a recession.
The six companies whose stock prices declined the least since their 52-week highs are all quick-service companies. The 10 best-performing companies are all large names like McDonald’s, Yum Brands, Wendy’s, Restaurant Brands International, Darden and Dine Brands, or they serve steak (Texas Roadhouse, Ruth’s Chris), or they are a franchisee of a big name (Arcos Dorados) or their chairman has been buying up stock (Biglari Holdings).
Valuation changes
Some notable restaurant stocks and the changes in enterprise value this year.
Source: Sentieo