Wingstop Investors Hit the Exits After Profit Shortfall

Wingstop Inc. (WING) stock is trading lower by nearly 5% in Wednesday’s pre-market session after the company missed fourth quarter 2019 profit estimates by more than 17%, booking earnings per share (EPS) of $0.14 compared to consensus estimates of $0.17. The fast food chain reported in-line revenue of $53.19 million, which marked a 31.3% increase over the fourth quarter of 2018. Healthy domestic same-store sales growth of 12.5% offered disappointed investors a bit of good news, but that hasn’t stopped the early stampede for the exits.

The stock has been a top sector performer since breaking out to new highs in November 2017 and has nearly tripled in value since that time. That’s quite a feat in the over-crowded chicken wings space, but the restaurant’s choice to sell only drumettes, the meatiest and most expensive part of the wing, has paid off big time for the Dallas-based company. Even so, the stock has struggled to hold the $100 level since mounting that psychological barrier for the first time in August 2019.

WING Technical Outlook

Wingstop stock came public near $30 in June 2015 and sold off, bottoming out at an all-time low at $20.31 in November. It completed a round trip into the prior high two years later and broke out, entering a powerful trend advance that accelerated in the second half of 2018. Bulls remained in control until August 2019, when the rally ended at an all-time high at $107.43 and rolled over in a steep decline that posted losses in excess of 30% before finding support in the low $70s in November.

The bounce into February 2020 crossed the .786 sell-off retracement level at $100 last week, but the stock has dropped nearly four points below that significant barrier after this morning’s confessional. This perfect placement raises the odds that the reversal will stick and generate a downturn that tests 50-day exponential moving average (EMA) support near $90. The stock held similar tests twice in January, marking a key level that could offer a low-risk buying opportunity.

Jack in the Box Inc. (JACK) Earnings After the Bell

The fast food business has generated dozens of winners and losers over the years. Market players have an opportunity to evaluate one of the industry’s quirkiest players when Jack in the Box Inc. (JACK) reports first quarter 2020 earnings after the closing bell. Analysts expect the chain to post EPS of $1.38 on revenue of $296 million. Jack in the Box doesn’t have a category killer like Popeye’s chicken sandwich, but the recent Tiny Tacos reintroduction has garnered unusual excitement. Popeye’s is wholly owned by Canada’s Restaurant Brands International Inc. (QSR).

Jack in the Box stock completed a round trip into the 2007 high at $39.77 in June 2013 and broke out, entering a healthy uptrend that stalled near $100 in the first quarter of 2015. It dropped nearly 40% into the second quarter of 2016 and turned sharply higher, returning to the prior high in September. A November breakout posted an all-time high at $113.30 at year end, ahead of a decline that failed the breakout, signaling a downtrend that hit a three-year low in August 2019.

Price action into 2020 has remounted broken support in the mid-$70s but remains stuck within a volatile trading range, bounded by stronger resistance in the low $90s. Looking back, that level marks the 2018 breakdown from a multi-year triple top as well as the 50% sell-off retracement, defining the balance point between bulls and bears. It is hard to recommend buying this issue until the barrier is mounted successfully, especially with accumulation readings showing little buying power since 2016.

The Bottom Line

Wingstop’s earnings shortfall on Wednesday morning could weigh on Jack in the Box’s first quarter 2020 post-market report.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.