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.
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