Wendy’s Stock To $5?

Our multi-factor assessment suggests that it may be time to sell WEN stock. We have, overall, a pessimistic view of the stock, and a price of $5 may not be out of reach. We believe there are several things to fear in WEN stock given its overall Weak operating performance and financial condition. Hence, despite its Low valuation, this makes the stock look Risky.

Below is our assessment:

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Let’s get into details of each of the assessed factors but before that, for quick background: With $1.4 Bil in market cap, Wendy’s operates quick-service restaurants through U.S., international, and real estate segments, managing over 400 company-operated and 5,500 franchised locations in the United States.

[1] Valuation Looks Low

This table highlights how WEN is valued vs broader market. For more details see: WEN Valuation Ratios

[2] Growth Is Very Weak

• Wendy’s has seen its top line grow at an average rate of 1.3% over the last 3 years
• Its revenues have fallen -3.1% from $2.2 Bil to $2.2 Bil in the last 12 months
• Also, its quarterly revenues declined -5.5% to $543 Mil in the most recent quarter from $574 Mil a year ago.

This table highlights how WEN is growing vs broader market. For more details see: WEN Revenue Comparison

[3] Profitability Appears Moderate

• WEN last 12 month operating income was $355 Mil representing operating margin of 16.3%
• With cash flow margin of 15.8%, it generated nearly $345 Mil in operating cash flow over this period
• For the same period, WEN generated nearly $165 Mil in net income, suggesting net margin of about 7.6%

This table highlights how WEN profitability vs broader market. For more details see: WEN Operating Income Comparison

[4] Financial Stability Looks Weak

• WEN Debt was $4.1 Bil at the end of the most recent quarter, while its current Market Cap is $1.4 Bil. This implies Debt-to-Equity Ratio of 301.8%
• WEN Cash (including cash equivalents) makes up $301 Mil of $5.0 Bil in total Assets. This yields a Cash-to-Assets Ratio of 6.1%

[5] Downturn Resilience Is Very Weak

WEN has fared much worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• WEN stock fell 44.3% from a high of $28.87 on 8 June 2021 to $16.07 on 11 May 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $23.83 on 15 May 2023 , and currently trades at $7.15

 
2020 Covid Pandemic

• WEN stock fell 68.8% from a high of $23.94 on 21 February 2020 to $7.47 on 18 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 9 October 2020

 
2008 Global Financial Crisis

• WEN stock fell 86.8% from a high of $21.46 on 11 January 2007 to $2.84 on 27 October 2008 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 26 August 2019

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read WEN Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.