Baron Funds, an investment management company, released its “Baron Discovery Fund” first quarter 2025 investor letter. A copy of the letter can be downloaded here. In the first quarter, the fund was down 6.17% (Institutional Shares), outperforming the -11.12% return for the Russell 2000 Growth Index. The market began strong in February but faded due to Trump’s serious tariff enactment, which the market perceives as inflationary and slowing economic growth. The decline accelerated after April 2nd, causing fears of a trade war and global recession. In addition, please check the fund’s top five holdings to know its best picks in 2025.
In its first-quarter 2025 investor letter, Baron Discovery Fund highlighted stocks such as Wingstop Inc. (NASDAQ:WING). Wingstop Inc. (NASDAQ:WING) is a restaurant company that operates under the brand name Wingstop. The one-month return of Wingstop Inc. (NASDAQ:WING) was 52.30%, and its shares lost 16.13% of their value over the last 52 weeks. On May 16, 2025, Wingstop Inc. (NASDAQ:WING) stock closed at $321.08 per share with a market capitalization of $8.959 billion.
Baron Discovery Fund stated the following regarding Wingstop Inc. (NASDAQ:WING) in its Q1 2025 investor letter:
“During the quarter we “invested in reverse” and initiated a position in Wingstop Inc. (NASDAQ:WING). Wingstop shares have recently underperformed, as following two straight years of very strong same-store sales growth, trends have returned to normalized levels. We took advantage of this opportunity to own this high-quality company at a compelling valuation relative to its growth and margin prospects.
Wingstop is a franchised limited-service restaurant company that serves cooked-to-order wings, tenders, and chicken sandwiches and is the leader within the popular chicken wing category. Wingstop restaurants operate on a relatively simple operating model of made to order chicken wings and sandwiches and the majority of its food is consumed off-premise, which allows for a smaller square footage store. The combination of a simple operating model and smaller stores provides an efficient model for franchisees with stores generating $2 million in revenue per store with restaurant level margins of around 25%. Additionally, new stores require a relatively modest initial investment of $500,000 which leads to best-in-class cash on cash returns in excess of 70% for franchisees.
Wingstop ended 2024 with over 2,500 global locations and we expect the company to grow units at a 10% compounded annual growth rate over the long term. Eventually, we see a path to 10,000 units globally, supported by the company’s leadership in the wing category and strong unit economics as described above. We also expect Wingstop to be able to grow same-store sales in the mid-single-digit range as it invests in brand awareness campaigns, improves digital efficiency and ordering times, and expands its menu offering. The combination of 10%-plus unit growth and mid-single-digit same-store sales should lead to mid-teens revenue growth and high teens profit growth over the foreseeable future. We are also attracted to Wingstop’s high margin, free-cash flow generative, asset light franchise business model.”
Customers savoring boneless wings at a bustling restaurant owned by the company.
Wingstop Inc. (NASDAQ:WING) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 36 hedge fund portfolios held Wingstop Inc. (NASDAQ:WING) at the end of the fourth quarter, compared to 39 in the third quarter. In the first quarter of 2025, Wingstop Inc.’s (NASDAQ:WING) revenue grew 17.4% year-over-year reaching $171 million. While we acknowledge the potential of Wingstop Inc. (NASDAQ:WING) as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as NVIDIA but that trades at less than 5 times its earnings, check out our report about the undervalued AI stock set for massive gains.
In another article, we covered Wingstop Inc. (NASDAQ:WING) and shared the list of best restaurant stocks to buy according to hedge funds. In addition, please check out our hedge fund investor letters Q1 2025 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
