Retailers are taking a fresh look at Wendy’s.
The fast-food chain’s shares rose about 26% to record Tuesday after a post on Reddit’s popular WallStreetBets forum called Wendy’s “the perfect stock” for its signature products and “effective” social media presence Group designated.
It’s the latest so-called meme stock that has caught the group’s interest. The growing list includes GameStop, AMC, and Bed Bath & Beyond.
Two market analysts warned investors not to jump into the hype.
“I think the reason the Reddit crowd is pushing it today is because the retail stock price at Wendy’s is pretty small, but I can guarantee you nothing changed overnight to change the basic story Michael Binger, President of Gradient Investments, told CNBC’s Trading Nation “on Tuesday.
Although the company has a “decent business model” and can benefit from the economic reopening, its stock trades at a remarkably high price-earnings multiple for only 3% revenue growth, he said.
According to FactSet, the stock even exceeded its average analyst price target of $ 27.85.
“We’re looking for a separation between valuation and fundamentals,” said Binger. “With the price targets being hit at this level here, I just don’t think it’s a good entry point here. Unless you’re the nimble trader I’d just stay away from Wendy’s. I think it’s a target and price hit it’s relatively expensive compared to other stocks in the group. “
Other names in the category are far more attractive, said Chantico Global founder and CEO Gina Sanchez in the same “Trading Nation” interview.
Wendy’s has not only left its competitors far behind in the course of the coronavirus pandemic, but also its expectations from the lockdown are below expectations, said Sanchez, also chief market strategist at Lido Advisors.
“Your expectations arising from the pandemic are fine, they’re not bad, it’s a proven business model, but they’re not as good as the rest of the group,” she said.
“Brinker – that just didn’t go very well during the pandemic – has great expectations,” she said. “And that’s why this stock just isn’t that attractive compared to other stocks.”
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