Citadel Investment Group, a large hedge fund managed by billionaire Ken Griffin, has reported a position of 960,000 shares in Buffalo Wild Wings (NASDAQ:BWLD). This gives the fund 5.1% of the total shares outstanding. We track 13F filings from hedge funds such as Citadel not only to formulate investment strategies (for example, the most popular small cap stocks among hedge funds outperform the market by 18 percentage points per year on average) but also so we can see how funds trade stocks over time. It turns out that Citadel’s current stake (see more stocks Griffin owned) is up from a little over 250,000 shares at the beginning of January; as a result this is a very large increase which may make Citadel the largest holder of Buffalo Wild Wings out of the hundreds of 13F filers which we track.
Buffalo Wild Wings grew its revenue by 33% last year compared to 2011 (over 90% of revenue came from restaurant sales as opposed to franchise sources). Margins did narrow but earnings did increase at a double-digit rate: 14%. Compound annual growth rates over the last four years were 25% for revenue and 24% for net income, which indicates that growth is not slowing at all on the top line but that the company has been encountering difficulties on the margin front. The fourth quarter of 2012 was strong, with earnings growing 22% versus a year earlier, but the adjusted earnings numbers missed analyst expectations for the third quarter in a row.
This is because the market is pricing in very high growth at Buffalo Wild Wings for the medium-term future. At a market capitalization of $1.6 billion the stock trades at 27 times trailing earnings. Even with good results expected for the next couple years the valuation is 20 times consensus earnings for 2014. So the company could grow at a high rate and still prove overvalued at the current price. A number of market players think that is the case: 23% of the outstanding shares are held short.
Fellow billionaire Steve Cohen’s SAC Capital Advisors had been a major shareholder of Buffalo Wild Wings in the fourth quarter of 2012, according to its own 13F (find Cohen’s favorite stocks). Tiger Consumer Management, a hedge fund managed by Tiger Cub Patrick McCormack, increased its stake in the restaurant by 6% to a total of about 900,000 shares (check out Tiger Consumer Management’s stock picks).
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