Bookkeeping: Adding to Buffalo Wild Wings (BWLD)

Submitted By Trader Mark
Since the market is insistent the consumer is back, we do have a few plays in this part of the market and frankly they've been the only thing working the past few weeks. One such name is Buffalo Wild Wings (BWLD). To show you how hard this market is, yesterday the stock looked to be breaking out, on a new high - today it is down 8%. If you bought the breakout you are punished. Typical.

There could be a number of things - the reduction in corn output per USDA, the weak retail numbers, the warning from Chipotle, and a downgrade today.

Morgan Keegan downgraded Buffalo Wild Wings Inc (BWLD), an operator of bar and grill restaurants, to "market perform" from "outperform" based on valuation. Buffalo Wild Wings shares, which have gained more than 70 percent of their value since the start of the year, fell as much as 9 percent in Friday morning trade.
"With shares... trading at substantial premiums to its peers, and operating headwinds still weighing on the industry, we believe the shares appear fairly valued at recent levels," Morgan Keegan analyst Destin Tompkins wrote in a note. Buffalo Wild Wings shares were trading at 28 times forward earnings.
Buffalo Wild Wings could report better-than-expected results for the third quarter, but the current share price partially reflects that potential, Tompkins added. However, the company's operating fundamentals remain strong and its robust same-store sales momentum is expected to continue into 2009, the analyst said.
He also expects chicken wing costs to remain favorable through the rest of 2008, but added that chicken production is slowing and could yield higher chicken prices in 2009. Chicken wings made up about 21.5 percent of Buffalo Wild Wings' cost of sales in the first half of the year.

I am increasing the position to 1.3% of fund here around $37 but looking to see if we can get a fall to that $34 level. Since we've cut so many positions, I plan on making positions I remain in larger (while maintaining cash)

I do find it absolutely bemusing that people are running up BWLD at 28x earnings while puking up fertilizer stocks at 7x. Quite an amazing market. But again, these are the things the herd is running into, even if the thesis is faulty. Luckily BWLD is executing in a very difficult environment but in my estimation no retail/restaurant stocks deserves a near 30x multiple. HAL9000 disagrees with me.

[Aug 11: Starting Buffalo Wild Wings Position]

Long Buffalo Wild Wings in fund; no personal position

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