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Is Buffalo Wild Wings (BWLD) an Apt Choice for Value Investors?

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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Buffalo Wild Wings, Inc. stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, Buffalo Wild Wings has a trailing twelve months PE ratio of 27.77. This level compares unfavorably with the market at large, as the PE ratio for the S&P 500 comes in at about 20.48.



However, if we focus on the long-term trend of the stock, the current level puts Buffalo Wild Wings’ current PE near its lows. The current PE is well below its median for the term (which stands at 31.44). Hence, we could infer that the stock is undervalued in light of its historical trend.

Notably, the stock’s PE compares similarly with the Zacks classified Retail - Restaurants industry’s trailing twelve months PE ratio, which stands at 27.17. At the very least, this indicates that the stock is valued similar to its peers.



We should also point out that Buffalo Wild Wings has a forward PE ratio (price relative to this year’s earnings) of 25.39 – lower than its current level. So it is fair to say that a slightly more value-oriented path may be ahead for Buffalo Wild Wings stock in the near term too.

PS Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, Buffalo Wild Wings has a P/S ratio of about 1.14. This is significantly lower than the Zacks categorized Retail – Restaurants industry average, which comes in at 3.63 right now. Also, as we can see in the chart below, this is the lowest for this stock in particular over the past few years.



This clearly suggests some level of undervalued trading for BWLD—at least compared to historical norms.

PEG Ratio

While earnings are certainly important, it is essential to know how much you are paying for the growth of earnings as well. One can easily do that with the PEG ratio (ratio of the P/E to the expected future earnings growth rate).The PEG ratio gives a more complete picture of the valuation of a stock than the P/E ratio.

Buffalo Wild Wings’ PEG ratio stands at 1.48, compared with the Zacks Retail-Restaurants industry average of 1.59. This suggests a decent undervalued trading relative to its earnings growth potential right now.



P/CF Ratio

An often overlooked ratio that can still be a great indicator of value is the price/cash flow metric. This ratio doesn’t take amortization and depreciation into account, so can give a more accurate picture of the financial health in a business. This is a preferred metric to some valuation investors because cash flows are (a) generally less prone to manipulation by the company’s management and (b) are less affected by variation in accounting policies between different companies.

The ratio is generally applied to find out whether a company’s stock is overpriced or underpriced with reference to its cash flows generation potential compared with its competitors. However, it is not commonly used for cross-industry comparison, as the average price to cash flow ratio varies from industry to industry.

In this case, Buffalo Wild Wings’ P/CF ratio of 9.69 is much lower than the Zacks classified Retail-Restaurants industry average of 18.06, which indicates that the stock is undervalued in this respect.



Broad Value Outlook

In aggregate, Buffalo Wild Wings currently has a Zacks Value Style Score of ‘B’, putting it into the top 40% of all stocks we cover from this look. This makes Buffalo Wild Wings an apt choice for value investors.

What About the Stock Overall?

Though Buffalo Wild Wings might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of ‘A’ and a Momentum score of ‘F’. This gives BWLD a Zacks VGM score—or its overarching fundamental grade—of ‘A’. (You can read more about the Zacks Style Scores here >>)

Our VGM Score identifies stocks that have the most attractive value, growth, and momentum characteristics, and a good VGM score can increase your odds of success. All things considered, Buffalo Wild Wings seems to have pretty striking prospects.

Meanwhile, the company’s recent earnings estimates have been trending downwards lately. The current quarter has seen 11 estimates go lower in the past sixty days compared to none higher, while the full year estimate has seen 12 downward revisions and no upward revisions in the same time period.

This has had a meaningful impact on the consensus estimate as the current quarter consensus estimate has declined 21.1% in the past two months, while the full year estimate has moved lower by 5.6%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Buffalo Wild Wings, Inc. Price and Consensus

The combination of these somewhat mixed factors is why the stock has just a Zacks Rank #3 (Hold) and why we are looking for in-line performance from the company in the near term.

Bottom Line

Buffalo Wild Wings is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. Although boasting of a strong industry rank (Top 39% out of more than 250 industries), the company’s Zacks Rank #3 somewhat dims the sparkle.

Notably, the restaurant industry has been experiencing low consumption over the last few quarters as consumer discretionary spending in this space has been pretty sluggish. In addition, high labor costs as well as the company’s investments in several initiatives have been weighing on margins. Besides, higher traditional chicken wing prices along with other rising costs are anticipated to keep profits under pressure.

Nevertheless, Buffalo Wild Wings expects to gain from its sales-boosting initiatives including menu innovation, promotional offerings, roll-out of loyalty program, enhancement of digital capabilities and cost-containment efforts. Also, increased focus on take-out and delivery services as well as its entry into international markets is expected to further drive sales. Additionally, the company’s alliance with beverage chains and major sporting events has been increasing its brand awareness.

So, value investors might want to wait for estimates and analyst sentiment to turn bullish in this name first, but once that happens, this stock could be a compelling pick.

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