Recently, Buffalo Wild Wings (NASDAQ:BWLD) experienced a 2% decline in after-hours trading despite the fact that its second-quarter earnings results exceeded analysts’ expectations. Since the beginning of the year, Buffalo Wild Wings (NASDAQ:BWLD) has gained more than 31.5%, outperforming the S&P 500’s return of more than 18.2%. Should investors buy Buffalo Wild Wings (NASDAQ:BWLD) after its rising second-quarter earnings results? Let’s take a closer look.
Impressive second-quarter earnings growth
In the second quarter 2013, Buffalo Wild Wings (NASDAQ:BWLD) managed to increase its revenue by nearly 27.8%, from $238.7 million last year to $305 million this year. The growth in revenue was mainly due to 29.4% growth in its restaurant sales. Its net earnings jumped as much as 41.4% to nearly $16.5 million while the EPS grew nearly 42% to $0.88 per share. Its same-store sales experienced decent growth at 3.8% at company-owned restaurants and 4.1% at franchised restaurants.
What I like about Buffalo Wild Wings (NASDAQ:BWLD) is its spectacular historical growth and a strong balance sheet. The company managed to grow its revenue from $422 million in 2008 to more than $1 billion in 2012 while EPS rose from $1.36 per share to $3.06 per share during the same period. To achieve this significant growth, the company employs very little debt in its operations. As of June, it had nearly $420.8 million in equity, $23.5 million in cash and nearly no debt. Because most of its growth is organic, the company does not report a lot of goodwill. The goodwill came in at around $32.5 million.
Looking forward, Buffalo Wild Wings (NASDAQ:BWLD) is quite bullish about the “fantasy football draft parties,” the upcoming NFL and NCAA football seasons, including one extra week of games in its third quarter. The company estimates that it will experience an improvement in the cost of sales percentage because of lower traditional wing costs and a new menu strategy to sell wings by portions. Buffalo Wild Wings expects to deliver 17% growth in its net earnings for the full year, equivalent to 25% growth on a 52-week basis.
The lowest valuation among other restaurant operators
Because of the high growth, Buffalo Wild Wings enjoyed a double-digit EBITDA (earnings before interest, taxes, depreciation and amortization) multiple valuation. At $97.70 per share, the company is worth around $1.8 billion. The market values the company at nearly 12 times its trailing EBITDA. Compared to other restaurant operators, including and Dunkin Brands Group Inc (NASDAQ:DNKN), Buffalo Wild Wings’ valuation is the lowest.
Nathan’s Famous, Inc. (NASDAQ:NATH) is the smallest but most expensively valued company among the three. At $52 per share, Nathan’s Famous is worth around $231.9 million. The market values Nathan’s Famous, Inc. (NASDAQ:NATH) at as much as 18.2 times its trailing EBITDA. What might make investors interested in Nathan’s Famous is its franchise business model. Among 308 restaurants under the company’s leadership, only five restaurants are company-owned while the remaining 303 restaurants are franchised. Consequently, the company does not have to incur a lot of maintenance capital expenditures, which allows it to be more financially flexible.