r/stocks
Why I believe Wendy's is just getting started
Wendy's is fundamentally undervalued with strong cash flows and potential PE buyout, despite meme stock hype and operational challenges.
- Deeply discounted valuation with positive cash flows and a dividend, trading at a massive discount from 2021 peaks.
- Potential take-private transaction by PE firms like Trian, indicating the stock is considered cheap by institutional investors.
- Solid fundamental business with $3.2B Q1 sales and $111M adjusted EBITDA, fundamentally worth over $12.
- Operational issues including degraded food quality, margin pressures, and rising food costs.
- High meme stock hype and short interest might lead to volatility rather than fundamental appreciation.
As the Wendy's story gets hyped as another meme stock, we may have stumbled on to a legitimately promising company.
Wendy's system-wide sales in Q1 were $3.2 billion while adjusted EBITDA stood at $111 million.
At present, the market cap of the stock is around $1.2 billion.
A fast food chain operating across the country with more than 7,000 stores, positive cash flows, a dividend, heavily discounted valuation of the stock and a fall of more than 78% since its peak levels in 2021.
In fact, it used to trade around $18 level for a decade. The stock is now being priced like the franchise is completely busted.
At the same time, a private equity firm Trian of Nelson Peltz has already indicated that the stock is cheap & has been in search of funding for a possible take-private transaction. Private equity companies circle around the stocks that are being underpriced by the public markets.
For sure there are problems with the business. Food quality has degraded, the margins are under pressure, food costs rising, and an expected new design with Wendy’s 2.0 floor plan.
The meme stock angle is garnering people's attention and reported short interest is stoking the flames as people compare to GameStop and Volkswagen.
Don’t lose sight that Wendy's is a legitimate business with legitimate EBITDA trading at deeply discounted levels with talk of take-private already doing the rounds.
It may take the market sometime to understand the reality of the situation, and realize this is a stock that isn’t just worth sticking around for a quick pump but actually going long on.
I think fundamentally this is a $12+ company and could push higher depending on future buyout.
TL;DR Wendy’s is a solid company that was undervalued prior to meme status and is primed for a buyout at a value substantially higher than current share price
Note: this post was going viral and then was removed from WSB and the mod sent me messages calling me names