Why Wendy's Stock Dropped
Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.
What: Wendy's shares were giving investors indigestion today, closing down 11% after its top-line results disappointed the market today.
So what: Sales at the burger chain inched up 1% to $640.8 million, but missed estimates of $643.4 million. The stock has rocketed higher this year on a brand revamp, with shares nearly doubling as the company renovates stores and redesigns its menu. Given the appreciation, a sales miss was likely to bring the stock down significantly. Even so, adjusted earnings of $0.08 beat expectations of $0.06 so the company seems to be moving in the right direction. Wendy's also lifted its EPS guidance for the year to $0.25, better than analyst estimates at $0.23.
Now what: While Wendy's turnaround strategy seems to be progressing nicely, today's events are likely evidence that the stock has been overbought, and with a forward P/E at 29, it's easy to see why. Same-stores sales moved up 3.2% in the quarter, indicating that organic growth is still modest. Over the long haul, Wendy's strategy looks like it will pay off, but for now, shares may need to take a breather.
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The article Why Wendy's Stock Dropped originally appeared on Fool.com.Fool contributor Jeremy Bowman has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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