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With COVID-19 boosting the success of Dominoes Pizza (DPZ) and Wingstop (WING), which of these companies is a better buy? Are these growth numbers sustainable for both these casual restaurant giants?
This is Sailesh Tirupasur. I'm a part of Stock Card's summer internship program in 2020, and this post is a part of my Stock Battle series. I don't own these two stocks, and my goal here is to study them to decide whether to invest or not. These stocks are apart of our Stock Card's Watchlist for Beginners list. If you want to see other stocks in this category, click here. Stock research and analysis: The restaurant industry is experiencing some extreme difficulties at the moment. According to the National Restaurant Association, roughly 100,000 restaurants are expected to close permanently in the next month, with more than 30,000 already shut down. With over three million restaurant workers out of a job and $25 billion lost, the industry is forced to adapt to the delivery business model or to shut down inevitably. Two casual restaurants that have been more than prepared to tackle the pandemic and adjust their business model are Domino's Pizza and Wingstop. Domino's is a leading competitor in the $84 billion global pizza market. It has caught many investors' eyes with their move to delivery and a new menu addition of chicken wings. Domino's quarterly earnings report was shared by the company yesterday and reported revenue and earnings that far exceeded investor expectations. The second quarter totaled $920 million, which is up from $811 million last year. Wingstop's same-store sales and its international sales grew 16% and 1% respectively. These positive numbers, combined with its move to offer chicken wings on its menu, make Domino's a lucrative option for investors. One prevalent risk of this well-established pizza stock is that experts are cautious of the high share price due to the positive earnings report. Experts are informing investors that it's likely smarter to wait for a pullback to around mid 300's to look to invest in the pizza giant seriously. Wingstop is a high-growth franchisor and operator of restaurants specializing in cooked-to-order, hand-sauced, and tossed chicken wings. Wingstop has planned on becoming a top 10 restaurant/food brand in the U.S. despite the harsh conditions of the pandemic. When dining rooms closed across the country, Wingstop was quite prepared due to 80% of its sales being to-go orders. Its digital sales were already 40% of total sales, giving it a robust technology platform to accommodate the sudden shift in consumer behavior. Wingstop shares flew 61% higher during the first half of the year, making it the top restaurant stock. Domestic same-store sales rose 30% higher in April, meaning that its sales growth streak of 16 years is still intact. Wingstop even ended the first half of the year with its first "ghost kitchen," a small space designed entirely for a to-go operating model. This shows the company's commitment to the changing landscape of the struggling industry. ​ While Wingstop has a very successful business plan, experts associate some risks with the company. With a ridiculously high valuation, investors assume that Wingstop's success will never stop, and that could be a dangerous assumption. A shift in dietary preferences among Americans could spell serious trouble for the chicken wing company. With waves of "healthy lifestyle" campaigns, Wingstop's products might not match the health benefits of other foods. Companies like Beyond Meat (BYND) are hitting billion-dollar valuations and could be a serious potential competitor in the future.
Final decision:
With the pandemic changing the restaurant industry's landscape, these two companies are in a prime position to grow due to their adaptable business models and reliable use of technology. While both of these stocks are lucrative, I would bet on Domino's due to its recent strong earnings numbers and willingness to dip its feet into different food products to appeal to a larger crowd.
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