Popular upscale hamburger chain Shake Shack Inc SHAK announced its highly coveted IPO on January 30, pricing shares at $21 to start. Investors were eager to get their hands on Shake Shack shares, more than doubling the stock’s price on its first day of trading and closing at $45.90.
The company currently operates just 63 restaurants in nine different countries, 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 every year, as well as adding more international locations.
The Shake Shack excitement has started to wear off as the stock dropped roughly 9 percent in mid-February. Since this dip, Shake Shack’s stock has slightly rebounded, closing at $43.47 on February 24. Investors have begun to question the stock’s valuation with the measured growth strategy presented by CEO Randy Garutti and Chairman Danny Meyer.
Garutti said in a statement, “I love the growth pace we’ve outlined…if we were trying to open 50 new restaurants this year I’d be worried.”
A handful of analysts weighed in on Shake Shack on February 24 in reaction to the company’s current high valuation.
Stifel Nicholaus analyst Paul Westra assigned a Buy rating on Shake Shack with a price target of $50, highlighting the company’s “ ‘enlightened hospitality’ approach to the restaurant business” as its most valuable asset. He added, “From an investor’s perspective, (Shake Shack’s) virtuous cycle of success helps significantly de-risk an inherently high risk proposition—which is investing in a small restaurant concept with global growth ambitions.”
Overall, Paul Westra has a 77 percent success rate recommending stocks and a +8.9 percent average return per recommendation.
Separately, Morgan Stanley analyst John Glass initiated an Equal-Weight rating on Shake Shack with a price target of $38, stating that “the dynamics of a small float are at work and we expect Shake Shack’s large, open-ended market opportunity to sustain valuation versus many other recent restaurant IPO’s.”
John Glass currently has an overall success rate of 68 percent recommending stocks and a +15.4 percent average return per recommendation.
Similarly, Jefferies analyst Andy Barish initiated a Hold rating on Shake Shack and a $40 price target, stating “We think SHAK will grow EBITDA 20 percent+ as it accelerates unit growth and establishes itself as the premier ‘fine casual’ brand in better burgers. However, with just 31 units today and a domestic runway of at least 450, there is execution risk. SHAK currently trades at the highest valuation in the group, and we’d prefer to let it grow into its multiple over time.”
Overall, Andy Barish has a 60 percent success rate recommending stocks and a +9.8 percent average return per recommendation.
On average, the top analyst consensus for Shake Shack on TipRanks is Hold.
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