The Crowd Is Selling Wendy's Stock. Here's Why It's a Buy Instead.

Wendy's (NASDAQ: WEN) has fallen out of favor among investors. Over the past year alone, shares in the fast-food company have fallen by nearly 50%. Recently, the company has faced stagnant sales and falling profits.

Yet while its slide may be justified, I believe that at 10.8 times forward earnings, it's become one of the most undervalued stocks, especially after the emergence of strong potential catalysts.

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Wendy's worsening results and value trap risk

At first glance, Wendy's looks like a value trap, considering its worsening results. Since 2023, Wendy's total revenue has barely budged, remaining at around $2.2 billion.

In the first quarter of 2026, while overall revenue increased 3.3%, systemwide sales fell 5.5%, driven largely by a 7.3% drop in U.S. franchisee sales. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) fell by 10.6%, while adjusted earnings fell from $0.20 to $0.12 per share, a 40% drop. Yet while results may be worsening for now, potential catalysts could change the story.

Don't discount turnaround potential

Last month, takeover talk briefly boosted Wendy's shares. Investor Nelson Peltz, a longtime Wendy's shareholder, has reportedly expressed interest in taking the company private. Around the time of the takeover rumors, one analyst, Wedbush's Michael Piccolo, argued that a buyout could happen at between $9 and $12 per share, nearly 43.7% to 92% above the current stock price.

Recent C-suite changes have cooled speculation about an imminent takeover. However, these changes could also serve as a stronger catalyst. Last month, Robert Wright, previously CEO of sandwich chain Potbelly, came on as CEO, and has since brought on former Potbelly CFO Steve Cirulis for the same role at Wendy's. Since the same leadership team successfully turned around Potbelly, ultimately leading to its sale, perhaps the same could happen here.

In the meantime, investors can collect this stock's nearly 9% dividend, although Wendy's reduced the dividend last year, and could do so again. Consider it a contrarian buy, but only because of the turnaround catalyst.

Thomas Niel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.