A Once-in-a-Decade Opportunity: 1 Magnificent Dividend Stock Down 36% to Buy Hand Over Fist in 2025

After briefly trading for more than $400 in 2024, shares of buffalo wing franchisor Wingstop (NASDAQ: WING) have plummeted 36%. Despite this decline, the growth stock still trades at a lofty price-to-earnings ratio of 80, more than double the S&P 500's average.

However, with its valuation now somewhere slightly below the infamous "priced for perfection," Wingstop may be worthy of a look from risk-tolerant investors again.

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In fact, I'd argue that the stock might be a once-in-a-decade opportunity following its recent drop. Here's the justification for the claim, and why I am excited to add shares of this compounding machine in 2025.

Wingstop's ambitious growth prospects

Wingstop consists of 2,120 locations in the United States and 338 restaurants in international markets as of September 2024. As recently as 2017, Wingstop's global locations only totaled 1,133, meaning that it has grown its store count by 12% annually since.

Part of the reason Wingstop has grown its footprint so quickly is that it predominantly operates through a franchise business model. By working with franchisees to locate, build, and share the risk of opening new locations, the company remains incredibly nimble as it expands worldwide.

This franchise model allows Wingstop to operate in a very asset-light manner, leaving it the financial flexibility to grow as quickly or as cautiously as it deems fit. Recently, management has focused on high-speed growth.

In its latest quarter, the company opened more than 100 restaurants, raising its store count growth to 17% over the last year, well above its historical rate. Thanks in part to this stellar growth, the company's overall sales grew by 39% during the third quarter. However, since earnings per share (EPS) only rose 31%, the market sold the stock off heavily.

I'd argue that this sell-off was overdone, but it's worth remembering that Wingstop's shares were priced for absolute perfection prior to this drop, so it may have been somewhat justified.

So why am I interested in Wingstop's stock if this reaction was justified?

First, Wingstop's long-term growth story is hard to beat. Management has stated that its store count potential could be 6,000 locations in the U.S. and 4,000 more internationally. Thanks to this growth opportunity, I believe it's way too early to panic about EPS growth being somewhat soft across a 90-day period.

Second, Wingstop will likely report its 21st consecutive year of same-store sales growth when it reports its fourth-quarter earnings in February. To put this stunning run in perspective, consider that its annual unit volume (AUV) at each store has grown from $902,000 in 2012 to $2.1 million today. This clearly shows that Wingstop is more than just a store count expansion story.

By leaning heavily on advertising to build its brand awareness (its commercials are almost impossible to miss if you've watched a basketball or football game in the last six months), Wingstop expects its AUV to reach $3 million over the long haul.

Growing cash returns to shareholders

Since its initial public offering in 2015, Wingstop's share price has appreciated 798%, leaving the company just shy of being a nine-bagger. However, thanks to steadily growing quarterly dividends and five large special dividend payments, Wingstop's total returns to investors are even higher, at 1,140%.

This not only highlights the power of dividends in general, but also shows the power of Wingstop's asset-light operations and the robust free cash flow (FCF) that comes with it. With its FCF margin of 24% despite being in hypergrowth mode, the company is well-positioned to continue quickly increasing a dividend that has already quadrupled since 2017.

And the cherry on top for investors?

Management recently announced a $500 million share buyback plan in addition to its 0.4% dividend. Considering the stock's recent decline, this buyback is well-timed and could help boost EPS by lowering the company's total outstanding shares.

Wingstop's once-in-a-decade valuation

While Wingstop still trades at a somewhat lofty valuation thanks to its immense growth potential, I'd argue that it trades at a much more attractive valuation than its closest peers, Chipotle Mexican Grill and Cava.

Data from YCharts.

In simplest terms, Wingstop is valued similarly to its more mature peer in Chipotle, but offers the same growth as up-and-coming growth stock Cava -- all while beating both on cash returns on invested capital (ROIC).

This lofty cash ROIC of 53% should be particularly noteworthy for investors, as it shows an ability to generate bundles of cash compared to its debt and equity. As this article shows, stocks with high-and-rising cash ROICs like Wingstop's have a lengthy history of producing market-stomping returns.

Additionally, Wingstop's price-to-cash from operations ratio of 43 is the lowest it has been since 2017 (except for a brief moment in 2022) and remains well below its decade-long average of 62.

Thanks to this comparably attractive valuation, the company's growing cash returns to shareholders, and its straightforward growth story, Wingstop might just be my favorite dividend growth stock to buy in 2025.

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Josh Kohn-Lindquist has positions in Chipotle Mexican Grill and Wingstop. The Motley Fool has positions in and recommends Chipotle Mexican Grill. The Motley Fool recommends Cava Group and Wingstop and recommends the following options: short December 2024 $54 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.