Billionaire Steve Cohen Orders More Buffalo Wild Wings

Peers for Buffalo Wild Wings include growth players Chipotle Mexican Grill, Inc. (NYSE:CMG) and Panera Bread Co (NASDAQ:PNRA) as well as table-service restaurants offering a similar experience; we’d particularly consider DineEquity Inc (NYSE:DIN), which owns Applebee’s, and Brinker International, Inc. (NYSE:EAT), which primarily operates and franchises Chili’s restaurants. Panera and Chipotle have even higher forward multiples than Buffalo Wild Wings, with Chipotle’s in particular close to 30. Of course, these two companies reported earnings growth of 20% in Chipotle’s case and 27% in Panera’s case for their most recent quarter compared to the same period in the previous year. While we’re wary of the valuations of these quick service restaurants, we think that the combination of valuation and growth they offer is substantially better than where Buffalo Wild Wings is. The full-service restaurants, meanwhile, carry discount to Buffalo Wild Wings in terms of their P/E multiples. Brinker in particular is valued at 16 times its trailing earnings and only 12 times its forward earnings estimates. It reported substantially higher net income last quarter than a year earlier, though revenue growth was limited.

We don’t think that this is a good hedge fund move for investors to follow. Buffalo Wild Wings has growth potential, but the valuation is expensive enough that it trades close to Panera and Chipotle- where the question is not one of growth potential but one of how long the company can continue what has been a pattern of high earnings growth. We’d avoid those two stocks, and so it’s an even worse idea from our perspective to buy Buffalo Wild Wings.