In July, Deal Report shared the charts of Cisco, the big internet backbone equipment maker and Sysco, the food distributor. Our point of sharing this info was to illustrate that a company need not be in the tech business to generate strong shareholder returns. The key is a solid business plan, strong management, and good execution.
We want to revisit that subject to help you build a diversified portfolio of private investments, and to do that you have to look beyond tech companies. A company in even a highly competitive, relatively simple business can generate outstanding shareholder returns in the right circumstances.
Wingstop is a great example. Wingstop makes chicken wings. It was founded in 1994 in Garland, Texas and started franchising in 1997. The founders did exceedingly well and sold the business to private equity investors in 2003. Those investors sold to yet another private group in 2010, which took the company public in 2015[i]. That last group, called Roark Capital, purchased the company for between $80 and $90 million[ii]. After the company went public, it banked more than $440 million in three sales of its shares[iii]. The new shareholders were also happy. IPO participants were up 60 percent on the first day[iv] and made nearly 550 percent if they held through Friday’s close.
Making and selling chicken wings is a pretty simple business and in any given area there are several restaurants that offer them. So how did Roark Capital make more than 350 percent on its investment in just five years? And how have the public shareholders done even better?
There are several factors that have helped Wingstop
- A good product. There are a lot of places selling chicken wings. Wingstop makes great wings and people remember that.
- An underpenetrated market. As we mentioned, a lot of places offer chicken wings.. Wingstop proved that there was substantial untapped market demand for high-quality chicken wings. Roark Capital must believe that there is still more demand; shortly after they finished selling their Wingstop position they bought Buffalo Wild Wings[v].
- Good marketing. Wingstop’s advertising campaigns and other marketing leave a good feeling with consumers.
- Good execution. The wholesale price of chicken wings can be volatile, so managing that risk well has been key for Wingstop. The company also made a successful pivot from a model that emphasized carry-out to one that focused on delivery when the pandemic struck.
- Returns to shareholders. Wingstop pays a quarterly dividend that has grown every year since the company went public and a special dividend when finances allow. Cumulatively, Wingstop has paid out $20.80 in dividends since it went public. Investors who purchased shares in the IPO and held until today have received more than their entire investment back in cash and they still own their shares!
Important Disclosure! These are not official recommendations. Investing is risky. Before making any
investments, we strongly advise you to discuss your investment options with your financial advisor, including whether any investment is suitable for your specific financial circumstances and needs.
Can You Find the Next Wingstop?
When Roark Capital bought Wingstop, ordinary investors like you could not play in the private equity markets. Today, you have opportunities to find and invest in the next potential Wingstop.
At Deal Report Pro we believe we have found an opportunity with similar characteristics to Wingstop and the potential to be a successful investment. We will shine a spotlight on a company with:
- A good product
- An underpenetrated market
- Good marketing
- Good execution
- Returns to shareholders
Your Checklist Items: Look beyond tech for your private investing portfolio. Find businesses with large untapped markets and superior management. Look for the rare opportunities to get a cash return on your investment before a liquidity event.
[iii] https://www.sec.gov/Archives/edgar/data/1636222/000119312515221543/d940662d424b4.htm#rom940662_13, https://www.sec.gov/Archives/edgar/data/1636222/000119312516760192/d244542d424b3.htm, https://www.sec.gov/Archives/edgar/data/1636222/000119312516676782/d237680d424b4.htm
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