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Why Now Is The Time To Short Wingstop


Roark Capital recently unloaded roughly half of its shares at these elevated prices in a follow-on offering led by Barclays, increasing the public float.

Stock trades for an insane valuation at eleven times revenue and thirty-two times trailing EBITDA.

We feel the stock can fall over 20% in the next three months with earnings having just been announced and no catalyst to move shares higher.

The average optimistic sell-side analyst bull case price target equals the current price, offering investors no upside right now.

Any market selloff is likely to cause this small capitalization, high valuation stock to fall dramatically.

Wingstop (NASDAQ:WING) is a high growth franchiser and operator of restaurants, which offer cooked to order, hand sauced and tossed chicken wings.

The company recently posted its second quarter results, which slightly beat estimates and caused the shares to skyrocket as a classic short squeeze took place.

This squeeze was made worse by the limited float of shares, given Roark Capital (Wingstop's majority private-equity owner) owning over 40% of all shares at the time. Given the volatility in the shares, we were waiting for an extremely attractive price prior to shorting the shares. At $32 per share and with 3 months before the next earnings, we feel the shares are a prime short and could fall to $25 easily over the next 3 months. The valuation is completely unsustainable.

If the stock goes much higher, it will trade for an enterprise value to revenue approaching that of Facebook (NASDAQ:FB). It already trades for double the enterprise value to revenue of Alphabet Inc. (NASDAQ:a>