Don't bet the Farm on Shake Shack (SHAK)
If only normal people could have been in on the Shake Shack Inc (NYSE:SHAK) IPO, we could have been set for 2015. Nope. You get the chance to buy it after a 100% gain. No thanks.
Most of us thought SHAK would be in the $20 range by end of day. Not even close. Wall Street knows a good thing when they see it. Everyone did. Thus the 118% one day gain. That made founder Danny Meyer more than $342 million in a few hours. Time to buy that new Tesla S and a few other things Danny.
From one hot dog cart in 2001 to the empire he has built today. But is it really an empire? 63 stores that is worth a $1.63 billion market cap.
John A. Gordon of restaurant advisory Pacific Management Consulting Group dismissed its implied stock valuation as “unsustainable over a long period.”
This is especially the case, he said, on comparing metrics commonly used for restaurant companies. Gordon estimated Shake Shack’s EBITDA to be $18 million last year and its enterprise value at $1.7 billion as of Friday.
That suggests the chain began life as a public company with a 94.4 Ebitda multiple — compared with a 10.7 multiple for McDonald’s.
The talking heads are comparing it to Chipotle (CMG) but what if it turns out to be the next Krispy Kreme (KKD)?
Chipotle is all about heathly fast food. Shake Shack may use natural ingredients, but healthy? No.
Shake Shack is an indulgence much like Krispy Kreme. There will be no Subway Jared diet that let's folks lose 100 lbs. on Shake Shack. The Shack's milkshakes are 640 to 800 calories, regular fries 470 calories, and the burgers start at 500 calories. That's a single patty, you want a double cheese burger hello 710 calories. That's not the fattest item on the menu which is the Double SmokeShack at 850 calories. (source: Shake Shack Nutritional Information)
Before you go thinking Shake Shack world domination let the stock come down a little and consider if high calorie fun food is a trend that can continue to profit in the long run.
You know who that didn't work for?
A picture is a thousand words:
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