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• Shake Shack has been perhaps the most closely watched IPO
this year, and shares have been volatile.
One wild ride
Valuation is high
• After reaching a high around $95 in May,
the stock has lost 50% as it’s been panned
by a chorus of analysts and commentators.
• Bears insist that the valuation is outrageous
and the stock’s early gains were a result of
• However, there a several catalysts in the
Average unit volumes are huge
• One of the best like-for-like ways to compare
restaurant stocks is on average unit sales. Using
this metric, we see that Shake Shack is miles
ahead of its competitors, showing how popular
the better burger chain is.
There’s no comparsion
And getting better...
• That means average unit volume should grow
this year, even though management has
projected a decline over the long term as it
expands outside of its core Manhattan
In its most recent quarter, average weekly sales
rose from $95,000 to $102,000.
• Meyer’s Union Square Hospitality Group’s
restaurants have won 26 James Beard awards,
and Union Square Cafe has been named “Most
Popular” restaurant by Zagat 9 times.
• In other words, Shake Shack’s success is not an
accident. It’s the product of visionary leadership
and excellent execution.
Founder Danny Meyer is one of the most
respected leaders in the restaurant industry.
The real estate advantage
Shake Shack targets only prime real estate,
reinforcing sales and brand strength, and its brand
equity helps it get locations that rivals might not.
The Citi Field Shake Shack has been overwhelmingly popular. Source: Shake Shack
• Average unit volume at international stores
was $6 million last year, better than at
domestic company-owned locations.
Similar to its real estate advantage, the company’s
brand makes it a desirable business in far-flung
locations like Moscow and Dubai.
All international restaurants are licensed. On average,
they have contributed about $250,000 in revenue
annually, much of which flows through to the bottom
A Shake Shack in Dubai. The company already has six locations in the Middle Eastern hub, and expe
to open many more abroad. Source: Shake Shack
Analysts are underestimating growth
• EPS of $0.09 vs. expectations of $0.03, and
revenue jumped 75%.
• In spite of that strong performance, analysts
only expect EPS of $0.30 next year.
• Restaurant-level profitability has improved
400 basis point this year, which should lead
to an acceleration in EPS growth.
Shake Shack crushed estimates in its previous
Add it all up
• That would give it a relatively modest P/E of
about 60 at today’s price.
• Considering the growth opportunities, brand
strength and unit economics, that seems like a
Next year, the company could generate net
income of around $25 million