Popular upscale hamburger chain Shake Shack (NYSE: SHAK) announced its highly coveted IPO on January 30th, pricing shares at $21 to start. Investors were eager to get their hands on Shake Shack shares, doubling the stock’s price on its first day of trading.
The company currently operates just 63 restaurants around the world, with 16 of them located in the metropolitan New York City area. The company said it plans to expand slowly with a goal to open 10 new locations in the United States a year as well as more international locations.
In the company’s IPO filing, Shake Sack stated that it prides itself on using “sustainable ingredients, such as all-natural, hormone and antibiotic-free beef,” an attractive factor to millennial consumers who are at the forefront of the healthier food movement. This was the very factor that has helped competitor Chipotle (NYSEARCA: CMG) win over costumers and boost its stock.
However, Longbow Research analyst Alton Stump is not so bullish on Shake Shack, initiating an Underperform rating on the stock on February 9th with a $21 price target. On the other hand, the analyst initiated a Buy rating on competitor The Habit Restaurants (NASDAQ: HABT) who went public last November. Stump noted, “We are confident Habit Burger has a superior near and long-term growth story vs. Shake Shack from both a new store and same-store sales perspective.”
Stump named four key factors that lead to his bearish rating on Shake Shack and bullish rating on The Habit: “1) HABT’s new store upside is more compelling than SHAK’s in the short and long-term, 2) HABT’s same-store sales are accelerating, while SHAK’s same-store sales are decelerating, 3) HABT is likely in a better position to at least partially cover beef cost inflation in comparison to SHAK, and 4) The shares of HABT are trading at a valuation less than 3x the shares of SHAK on a forward EV/EBITDA basis.”
Overall, Alton Stump has a 74% success rate recommending stocks and a +16.8% average return per recommendation.
Stump has a history of rating restaurant stocks, such as Chipotle (NYSEARCA: CMG) and Krispy Kreme Doughnuts (NYSE: KKD). The analyst has rated Chipotle four times since April 2014, earnings a 100% success rate recommending the company and a +19.6% average return per recommendation. Likewise, Stump has rated Krispy Kreme three times since January 2013, earning 100% success rate recommending the stock and a +41.0% average return per recommendation.
However, Alton Stump has not always been so accurate with his recommendations, having rated Panera Bread (NASDAQ: PNRA) four times since February 2014 with only a 33% success rate and a -3.2% average loss per recommendation.
Shake Shack is still a rookie on Wall Street, and Alton Stump does not believe that now is the time to Buy. Do you trust his latest recommendation based on his financial advice history?