Shake Shack (SHAK, Financial), the popular New York burger chain that currently has 68 outlets, has added sizzle to the stock market after declaring a 53% surge in sales and 80% rise in operating profit in a smashing quarter report that was presented this week. Boosted by a successful IPO on January this year with shares more than doubling their value since then, Shake shack’s plans to open at least ten more outlets in U.S. and diversification into chicken products under its much speculated “Chicken Shack” trademark has fueled the mounting excitement. The productive stock of the possibly best company-concept story which has multiplied almost 600 times in earnings has been unanimously voted "at hold" by all financial analysts on Wall Street. Last week, Jim Cramer from CNBC described Shake Shack as the “Tesla (TSLA, Financial) for burgers” drawing an analogy between the spectacular fast casual restaurant chain with the innovation leader in the auto industry, while analysts from Stifel labeled the forecast beating and expectation raising quarter as historically impressive.
The rise and rise of Shake Shack
Shake Shack started as the quintessential food cart selling American style burgers, fries and milkshakes in New York’s Madison Square park in 2000, but the delicious fare led to the first kiosk style restaurant in the same park in 2004 paving the way for many bigger and more lavish eating joints. Led by the reopened flagship restaurant in the original location, Shake Shack outlets enjoy cult popularity with long waiting lines on weekends especially during pleasant days with an average store performance of $4 million, almost double that of fast food giant McDonald’s (MCD, Financial) in U.S and following the footsteps of the market leader in fast casual gourmet, Chipotle Mexican Grill Inc. (CMG, Financial) which serves tacos and burritos made of organic ingredients and that hit gold at Wall Street, being rated as the benchmark for publicly traded restaurants.
The market capitalization of Shake Shack is $3.44 billion which is significantly high considering the small size of the company. Wendy’s (WEN, Financial), the 25 year old fast food chain is 95 times bigger in terms of outlets and 12 times in revenue but stands at similar valuation as $4.18 billion. Investors predict that Shake Shack’s meteoric rise and expansion plan of at least 450 American outlets will develop into a huge fast casual chain of restaurants for destination eating and not just everyday lunch.
The performance in market
On May 22, the stock closed at $92.86, up by 3.3%, ending a string of six impressive days of gains. The 40% rise in share price this month alone and the longest gaining streak since Shake Shack’s market debut in January has been primarily driven by the strong quarter which saw a 56.3% upsurge in revenue to stand at $37.8 million while per share earnings are twice their value last year. The major highlight was the 11.7% jump in same ‘Shack’ sales, surprisingly higher than the 5.1% predicted by Wall Street experts that triggered the trend of gains.
Out of the nearly 12 million shares, only 48% meaning 5.7 million shares are available for trade, with potentially more shares accessible for trade when lockup period for company employees expires on July 29 of the year. Based on this month’s performance and statistics that show an average daily turnover of float at 19%, analysts predict that the company will turn over its float nearly two and a half times in a year. Investors who bought shares at $21 in the IPO have already quadrupled their investments and are hoping for more from the sizzling hot Shake Shack stock.
