WEN

Why Wendy's Stock Crashed Today

What happened

Shares of fast-food chain Wendy's (NASDAQ: WEN) fell as much as 8.6% on Thursday even though the market trended upward in general. Noted short-seller Jim Chanos appeared on CNBC in the morning and said that he still expects several food-service stocks (including Wendy's) to continue falling. After mounting a partial recovery, the stock closed Thursday's trading 4.4% lower.

So what

The founder of short-selling investment firm Kynikos Associates appeared on CNBC's Halftime Report, where he said that the firm still is short-selling restaurant stocks such as Wendy's, Burger King parent Restaurant Brands (NYSE: QSR), and Dunkin' Brands (NASDAQ: DNKN). Restaurant Brands shares fell as much as 5.4% today, and Dunkin bottomed out at a drop of 8.2%.

Close-up photo of a bear placed in front of a large, red chart trending downward.

Image source: Getty Images.

Now what

Later in the CNBC show, Chanos provided some downright sensible advice to investors in support of his short-selling bets:

What we would really urge investors to do is, look at the business, look at the 2019, and do your research to take an educated guess at what you think this looks like in 2021. And if it's still a cheap stock then, then it might be an attractive investment on the long side. But if it's really, really expensive based on 2019 and 2021, you might want to think twice.

That's excellent advice in any market, and doubly so in times of crisis. Wendy's is trading at 24 times trailing earnings and 20 times next-year estimates. Both of these ratios place it among the 10 richest valuations in the restaurant industry today. Wendy's shareholders might indeed want to think twice about holding the stock.

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Anders Bylund has no position in any of the stocks mentioned. The Motley Fool recommends Dunkin' Brands Group. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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