Shake Shack Inc. (SHAK) is cashing in on a strong brand, cheap gas and the worldwide love of cheeseburgers. This Zacks Rank #1 (Strong Buy) is expected to see double digit earnings growth in 2015 and 2016.
Shake Shack started as a burger stand in 2004 in New York City’s Madison Square Park and now has multiple locations in 12 states, the District of Columbia and globally in many of the world’s largest cities including London, Istanbul, and Moscow.
It sells 100% all-natural, antibiotic-free Angus beef burgers, hot dogs, frozen custard, and crinkle cut fries.
Fourth Beat in a Row
On Nov 5, Shake Shack reported third quarter results and again beat the Zacks Consensus Estimate.
It was the fourth beat in a row. The company hasn’t missed since its early 2015 IPO.
Revenue jumped 67.4% to $53.3 million.
But it was same-Shack sales which was the star, rising 17.1% year over year. Same-Shack sales are those restaurants opened 24 months or longer. The base in the third quarter was 16 stores versus just 12 stores a year ago so it’s coming off a small base. A poor performance, or a great one, in just one or two stores can skew the numbers.
Average weekly sales for domestic company-operated Shacks was strong, growing to $103,000 from $94,000 in the same quarter a year ago.
The increase was primarily due to robust traffic growth, increased menu prices and strong performance from several Shacks opened in late 2014 including Las Vegas and Chicago.
Guidance for the rest of 2015 looks strong with Same-Shack sales now expected between 11% and 12%, up from its prior guidance of mid-to-high single digits.
It expects to open 12 domestic company-operated Shacks this year.
Outlook for 2016? More Growth
Shake Shack also provided an outlook for 2016 which saw Same-Shack sales growth between 2.5% and 3%. That may seem low compared to 2015’s projections, but the company has said that the first year or two of a store’s life are big and then the growth rate slows.
It expects to open 14 domestic company-operates Shacks in 2016 including in key markets such as West Hollywood and Scottsdale. The California opening will be its first foray into the Golden State.
It will be a real test in a market that already has other publicly-traded burger chains like Habit and some very popular privately-owned ones, such as In-and-Out Burger.
Eric Dutram and I discussed Shake Shack and the other burger stocks on Episode #2 of Zacks Market Edge Podcast in Oct 2015. Check out our thoughts on all of the top burger chains.
Shares Sink, Are They a Deal?
Like many IPOs, Shake Shack shares were hot out of the gate and then soared to new highs.
Over the last 6 months, however, shares have sunk 43%.
Are investors getting a deal?
After trading as high as 1000x earnings, you can now buy Shake Shack for just 138x.
That’s still expensive but double digit earnings growth is expected to be there. You’re going to pay more for that growth.
Analysts expect 2015 earnings to double. The Zacks Consensus Estimate is calling for $0.32 compared to just $0.16 last year.
Earnings are expected to rise another 18.3% in 2016 to $0.38.
Now that the shares have come down to earth, for investors looking for a fast growing restaurant chain in the hot burger sector, Shake Shack is one to keep on your short list.
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SHAKE SHACK INC (SHAK): Free Stock Analysis Report
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