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Apr 19, 2017

S3 Research: Wingstop Short Interest at All-Time High

Short interest measured on a share and notional basis in Wingstop Inc. (WING US), the franchise chicken wing restaurant business, is currently at an all-time high since going public in mid-2015.  S3’s real-time short selling analysis calculates shares on loan to be 7.7 million, or as much as $215.3 million of real money at risk currently from bearish speculators.
Analyzing shorting activity for 2016, short exposure was up 96%, from $78.5 million to $154 million, and shares on loan were up 51%, from 3.4 million to 5.2 million shares.   With the stock price ending the year up 30%, short sellers marked a paper loss of 23% on their average position, net of financing.  However, that hasn’t deterred short sellers from increasing their bearish bets in 2017.  Short exposure is up another 40% year-to-date, from $154 million to its current estimate of $215.3 million, and shares on loan up 48%, from 5.2 million to 7.7 million.  As the stock price has dropped more than 5% this year, short sellers are back in the black, up slightly less than 5% on their average position, net of financing.
According to activist Whitney Tilson of Kase Capital, who presented his short thesis on the company earlier this month, the current valuation of WING is “absurd,” with the stock currently “priced for perfection.”  Some other concerns he has include: decelerating same store growth, weakening margins, brutal competition from more established restaurant chains, and lack of a proprietary/unique business.  Mr. Tilson is betting that the stock price may potentially be cut in half, and he is certainly putting his money where his mouth is, disclosing that WING is his largest short position.  
Compared to the competition, Wingstop’s P/E ratio of 48 is currently richer than well-established peers McDonalds (23), Wendy’s (34), and Yum! Brands (17) based on growth prospects.  With Q1 earnings due to be released the first week of May, the recent trend in short selling activity indicates that the bears are betting the stock price gets sauced.  
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Director, S3 Partners
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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