Cramer Recommends Buffalo Wild Wings (BWLD)

On Friday's episode (2/11/11) of Mad Money, Cramer recommended buying BWLD. He even spoke to CEO Sally Smith. To read a description of Buffalo Wild Wings from Reuters, click here. His key points include:

• Had a good earnings report in which revenue was up 11% from the last quarter

• BWLD currently has 470 locations in 44 states, and is planning to open 100 more stores in 2011, some international

      o  The first international BWLD is planned to be in Canada

• There is about a 21% increase in revenue year-to-year

• Chicken prices are going down whilst all other food prices are rising

• During this Super Bowl, BWLD broke their own record by selling 6 million wings, which is double that of a regular Saturday or Sunday

• BWLD has not yet been established in the college towns of Philadelphia and Boston, two huge markets

• March Madness is coming up, which should bring in lots of revenue as many sports fans stop by BWLD or order for takeout

o BWLD is advertising throughout the college basketball tournament

Chipotle Mexican Grill (CMG), another growing fast food chain, is trading at over 40 times earnings whilst BWLD with similar growth year-to -year and similar potential future growth, if not more, is only trading around 21 times earnings.

But what Cramer did not talk about given his short window of time, and what I'm here to inform you of, is the financial position of BWLD - always look at the numbers. As Cramer had mentioned there is an average of 21% increase in revenue. To put this in perspective, BWLD posted $329.65M of revenue at the end of 2007. In the latest earnings report, for 2010, $613.26M revenue was posted. The profits have been rising with the revenue at almost the same rate, from $151.80M in 2007 to $285.19 in 2010. However, the total operating expenses have increased as well, from $304.04M to $556.91M during the same time period. This places the rate of increasing expenses to almost equal that of the revenue and profit.

As far as the balance sheet goes, BWLD seems to have a firm position on their finances. While both assets and liabilities have been increasing, the assets are increasing at a higher rate. The long-term debt is only at $18.29M. The total liability is $123.54 vs. $380.36M of total assets - not bad.

Finally, let's take a look at the cash flow, the most important report in my opinion. The net change in cash for this year was $5.73M as opposed to $-10.23M, $6.83M, $1.23M for 2007, 2008, and 2009 respectively. This is not too impressive of a number in the end for cash flow, but keeping in mind that this is a growing company

All in all, I agree with Cramer's recommendation to buy. Although BWLD has an increase rate in expenses almost equal to the increase rate of revenue and profit (about 20% year-to-year), the possible growth is just too hard to overlook. Chipotle is trading around 45 times earnings with a similar growth potential to that of Buffalo Wild Wings, which is only trading at 21 times earnings. Why can't BWLD eventually trade as high as Chipotle? It can. Final call: buy BWLD at $51/share.