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Last Financier is a premier community for traders and ambassadors seeking profit-maximizing information on emerging public companies. Through our research, we aim to educate and develop your understanding on a potential investment thesis. Ultimately, our mission is to offer timely and actionable analysis that assists our subscribers in the due diligence process.

Will Shake Shack Inc’s Surge Continue? (SHAK)

After a tumultuous start following a much anticipated IPO, Shake Shack Inc (NYSE:SHAK), the fast-casual chain that operates and licenses more than 60 restaurants across the world, saw its stock surge from $49.7 to $59.93, an increase of 14% since Monday. Shares managed to hit an all-time high of $53.90 on Monday, and continued in the same trajectory, closing at an incredible $57.47. SHAK now trades more than 30% higher than when it went public and this after it rose to $45.9, 119% above its offering price on its first day of trading.

A Great Start That Was Short Lived

Shake Shack has shown tremendous growth by increasing the number of Shak restaurants from seven to 63 since 2010. Looking to fund their aggressive domestic and international expansion strategy, the company raised $105 million in late January through an initial public offering.

Investors were initially dubious about the company because of the amount of hype surrounding the offering compounded by the fact that the stock closed 119% above the IPO price. As a result, Shake Shack saw their share price fall to an all-time low of $38.63 on February 17th.  Since, the stock has gradually appreciated in value, fueled by their latest quarterly report.

Latest Numbers Showing Continued Growth

Total sales increased 51.5% to $34.8 million (above) in Q4 2014 which represents a 52% increase from Q4 2013. This was mainly attributable to a 51.6% increase in Shack sales (from the opening of 10 new domestic and company operated stores) with same Shack-sales growing 7.2%.Shake Shack saw a significant improvement in their Shack-level operating profits which grew 7.2% in the last quarter of 2014 from the same period a year ago.

SHAK Annual Sales Profits

Finally, the company experienced a 58.5% and 31.5% increase in adjusted EBITDA in Q4 FY2014 and FY 2014 respectively over the same period a year ago (above). Adjusted EBITDA Margin decreased slightly to 15.93% due to higher food, paper and labor costs.

Beware the upcoming lockout expiration

An IPO lockup period, whereby pre-IPO investors are prohibited from selling their shares, is generally 180 days after the IPO date. During this time, the low supply of shares from a company’s small float results in high artificial demand.

Once this date arrives, and the locked up shares are freely traded, the market is flooded with greater supply and not enough demand. This puts selling pressure on the stock price.

GoPro Inc (NASDAQ:GRPO) experienced this following their June 2014 IPO after their underwriter J.P. Morgan prematurely removed the lockup restriction in October. Consequently, the company saw a gradual decline in their share prices from a high of $93.85 (below) to $46.35 today.

SHAK GoPro Price Chart

Shake Shack’s current float is 5 million shares, out of a potential 24.27 million  outstanding. After the lockup, the majority of the locked up shares will hit the market. With the lockup expiration on July 29th 2015, Shake Shack’s price will be negatively affected by the end of 2015 summer. Until  that time, it’s difficult to predict the price movement due to the limited float.

Conclusion 

In their latest earnings call, Shake Shack provided guidance for 2015 with expected revenues growth in the low single digits and sales to be in between $159 to $163 million.  On the lower end that would give SHAK a P/S of 4.39x, making it slightly more expensive than the industry average of 3.4x. Such a metric may be warranted with the company’s ambitious growth strategy of opening ten new domestically operated restaurants and five internationally licensed Shaks within the year. Until the lockup period expired, investors should stay clear of Shake Shack due to the volatile swings that aren’t fundamentally driven.

  • disqus_FYINAKV4CU

    makes no sense. HABT is growing faster, is bigger but is worth 65% less.

    • IJustWantTruth

      Shake Shak is to burgers what Starbucks is to coffee. Habit grill appears to be heir to the new Burger King. Make more sense now?

      • disqus_FYINAKV4CU

        couldn’t be more wrong.
        Have you been to Habit? I doubt it.
        Habit was ranked best burger in America. HABIT is to Chipotle.

        http://www.consumerreports.org/cro/magazine/2014/08/best-and-worst-fast-food-restaurants-in-america/index.htm

        SHAK price to book = 161 opening 10 domestic stores
        HABT price to book = 19, opening 25 stores

        SHAK price to sales = 18
        HABT price to sales = 4

        SHAK growth rate = 33%
        HABT growth rate = 35%

        SHAK 2015 Est Sales 160m
        HABT 2015 Est Sales 235m

        HABT better investment.

        • IJustWantTruth

          Bro bro bro no no no. Don’t show me a scorecard declaring Habit the best when Shake shack isn’t even in the competition.

          But, I might invest in HABT now based on your illumination.

          However, Shake Shack is a very very different animal than Habit. High end man vs almost high end.

          What’s your take on Fiesta restaurants?

          • disqus_FYINAKV4CU

            When it comes down to it, its all about dollars and cents no matter if its cheapo walmart or overpriced Apple. Both companies (SHAK and HABT) are great companies that have a great product and are popular. The difference is the price you can buy each for. I think I saw SHAK had a PE ratio of 1,000! lol Reminds me of the tech companies of 2000. I really don’t like to go by profit for these companies but I’m just pointing out how expensive SHAK is. Warren Buffet and anybody for that matter makes money on their investments buying stocks cheap. While HABT may not be dirt cheap, it is very cheap compared to SHAK. SHAK is very expensive.

            Not too familar with fiesta restaurants. Ever since I saw Smashburger in my area I’ve been waiting and wanting the IPO. I’m very happy for the HABIT opportunity but so far it’s a bit of a disappointment. There have been many rockstar stocks that started out of the gate slow though so I’m not worried.

  • jeepesq

    NEW YORK FOLK I KNOW SAY THE BURGERS ARE MEDIOCRE, THE SHAKES ARE NOT MADE WITH REAL ICE CREAM BUT A MIX, AND THE FRIES ARE BETTER AT MCDONALDS. SO WHY ALL THIS HYPE PAID FOR BY DANNY MEYERS?

    • IJustWantTruth

      I notice you didn’t mention those folks were your friends. Key clue.

      • jeepesq

        SOME ARE, AND SOME ARE NOT.
        BUT THEY TELL ME WATCH HOW THEY MAKE THE SHAKES AND SEE ITS NOT ICE CREAM THEY ARE USING. LOOKS SYNTHETIC TO THEM.

        • IJustWantTruth

          It is frozen custard which differs from ice cream in being made with eggs. They make it fresh every day too.

  • Allyson Taylor

    I am a novice. Bought this in the high 40’s . It’s in my IRA…should I hold or sell before the July release of stocks?

    • humza515

      I have been trading stocks for a little over a year now, but you should sell them as the value of a single stock in the company should decrease significantly when the lock up is over. Think about it like this original Babe Ruth cards are expensive because there are very few of them but what if instead of 10 cards left in the wolrd (made that number up) there was 1,000 cards left, the price of each card would drop since there is a larger quantity of them; Same thing with these shares. Plus the P/E of the company is over a 1,000 while its competitors is at around 20.

      • humza515

        I am still in high school with no official degree in finance but i have a passion for stocks and finance and hope to study it in the future

    • paula polls

      Do not put this junk in your IRA put SBUX let it ride thank me in 10 years