A strong period for restaurant growth could be a bad sign for investors in Wingstop , according to Piper Sandler. Analyst Nicole Miller Regan moved her rating on Wingstop to underweight from overweight, a rare double downgrade. She said in a note to clients Friday that the stock's high valuation looked unsustainable. "We fully understand and respect the recent executive shift with no material concern, or impact on this assessment. We do, however, expect WING shares to experience resistance in terms of garnering the same premium multiple in the face of a restaurant industry expansion cycle. Our lowered earnings estimates are a function of a lower royalty rate, revised advertising expense ratio, higher interest expense, and higher tax rate," the note said. Wingstop's current valuation multiple — as measured by enterprise value to earnings before interest, taxes, depreciation and amortization — is well above its historical average, Piper Sandler said. Typically, those valuations compress as the restaurant industry moves toward the later stages of a growth cycle, according to the note. "The restaurant industry is in full-swing expansion cycle, and with it a new class of investable options as fueled by committed capital, positive same-store sales, and accelerated unit development across the entire limited- and full-service spectrum of operations," the note said. Wingstop's stock has already struggled in 2022, falling nearly 30% year to date. Piper Sandler slashed its price target on Wingstop to $102 per share from $195. The new target is more than 15% below where the stock closed on Thursday. —CNBC's Michael Bloom contributed to this report.
Charles Morrison, CEO, Wingstop
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A strong period for restaurant growth could be a bad sign for investors in Wingstop, according to Piper Sandler.