If you believe in this stock, I wouldn’t be discouraged by the quarter. If anything, you should be encouraged that management is focused more on growing the business than “looking good.”
The PG-13 version of “Hooters”
Buffalo Wild Wings (NASDAQ:BWLD) is another stock that seems richly valued, but may be going higher. The company resembles both Starbucks Corporation (NASDAQ:SBUX) and 3D Systems Corporation (NYSE:DDD) in that it has a great CEO in Sally Smith, and it also has high short interest at over 10%. This wing-slinging business just reported a blow-out second quarter , with net income growth of 41%. Still, with a P/E ratio over 30 and a run up in share price of $40 just this year, some investors are calling the stock pricey.
I understand the concern over valuation, but Buffalo Wild Wings (NASDAQ:BWLD) has a hidden sneaky moat that may keep competitors at bay for a while. It’s a large scale wing and beer place to watch the game, but it is also family friendly. Most people wouldn’t bring their kid’s to Hooter’s, but they can bring the kids to Buffalo Wild Wings (NASDAQ:BWLD), and that is a huge competitive advantage.
For this reason alone, I feel that any short-term price drops will be outweighed by long-term growth at Buffalo Wild Wings (NASDAQ:BWLD). Until a viable competitor offers something similar on the same scale, there’s no reason that this stock can’t go even higher.
Say it with me: in the stock market, gravity does not exist
It’s natural to believe that a high-priced stock must come down to earth, or that a low-priced stock must bounce back, because most things in life work this way. Computers have dropped significantly in price from their early days, and everyone looks for a bargain at the super market.
But in the stock market, our instincts can hurt us. The truth is that great stocks don’t always come back to earth, and an underlying businesses performance matters more to a stock than a P/E does.
If a business is delighting its customers, growing its market share, and fending off competitors, there is no reason that it cannot go higher indefinitely.
The article 3 Gravity Defying Stocks, and 1 Lesson Learned originally appeared on Fool.com and is written by Adem Tahiri.
Adem Tahiri owns shares of Starbucks. The Motley Fool recommends 3D Systems, Buffalo Wild Wings, and Starbucks. The Motley Fool owns shares of 3D Systems, Buffalo Wild Wings, and Starbucks and has the following options: short January 2014 $36 calls on 3D Systems and short January 2014 $20 puts on 3D Systems.
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