Smash burgers are a booming trend in the fast-food industry. Their popularity has more than doubled on Yelp, and a tenfold rise in Google searches since the start of 2020 has crowned them as the most searched-for burger type. Fast-food chains like Shake Shack (NYSE:SHAK) are riding the wave and reaping the rewards, with a robust compound annual growth rate (CAGR) of 28.11% over the last three years and a solid 14% stock increase year-to-date.
These trends have grabbed Wall Street’s attention, with firms like Goldman Sachs (NYSE:GS) naming the company among its “best small-cap ideas.” The shares trade at a relative premium, reflecting enthusiasm for the company and pricing in growth expectations. Investors looking for long-term exposure to the restaurant industry might find this a tasty option.
Shake Shack’s Growing Footprint
Shake Shack is a premium fast-food burger and frozen custard restaurant. It positions itself as made-to-order food in a modern, upscale setting using top-grade ingredients.
The company has grown aggressively, adding eight new locations in the first quarter, bringing the total to 525. Expectations are to add 40 or so by the end of the year. This includes entering the Canadian market and launching its first shop in Toronto later this year.
Customer anticipation and willingness to pay more for quality are key aspects to watch as Shake Shack expands its footprint. The company focuses on further improving margins without sacrificing quality, suggesting favorable prospects once inflation eases.
Shake Shack’s Recent Financial Results & Outlook
Shake Shack reported financial results for the first quarter of 2024, demonstrating an overall improvement compared to the corresponding period in 2023. Revenue was $290.50 million, a year-over-year increase of 14.7% and marginally under the consensus expectation of $290.66 million. Net income of $2.2 million marked an improvement from the net loss of $1.6 million in 2023, while the company’s earnings per share (EPS) were $0.13, exceeding analysts’ projections of $0.10.
Management guidance for Q2 2024 included planning for approximately ten company-operated openings and eight to nine licensed openings. The projected revenue is between $308.9 million and $314.3 million. Licensing revenue is estimated to be between $10.9 million and $11.3 million. The restaurant-level profit margin is forecasted to be between 21.5% and 22.0%.
For Fiscal Year 2024, management anticipates approximately 40 company-operated and 40 licensed openings. Total revenue is projected to be between $1.22 billion and $1.25 billion, with licensing revenue contributing between $45 million and $47 million. Shake-Shack sales are expected to show a low-single-digit percentage increase compared to 2023. The forecast for restaurant-level profit margin is approximately 20.2% to 21.0%. The Adjusted EBITDA will be within the $160 million to $ 170 million range.
What Is the Price Target for SHAK Stock?
The stock is a bit more volatile than the overall market, sporting a beta of 1.45. It has been on a roller coaster ride since the pandemic, though it has been upward trending the past year, climbing roughly 7.5%. It trades toward the middle of its 52-week price range of $52.79 – $111.29, demonstrating negative price momentum by trading below its 20-day (87.84) and 50-day (91.78) moving averages. The stock appears relatively richly valued with a P/S ratio of 3.26x, compared to the Restaurant industry average of 2.75x.
Analysts following the company have been constructive about the stock. One of the more optimistic analysts is Truist Financial’s Jake Bartlett, a five-star analyst according to Tipranks ratings, who has reiterated a BUY rating on SHAK stock with a price target of $125, which means he still sees plenty of room for the company to grow.
However, Shake Shack is rated a Hold based on the recommendations and price targets recently assigned by 16 analysts. The average price target for SHAK stock is $109.53, representing a potential upside of 29.27% from current levels.
SHAK in Summary
With its rising popularity, Shake Shack has seen an impressive compound annual growth rate over the past few years, and the high quality, made-to-order approach of Shake Shack, alongside aggressive expansion plans, is pushing growth expectations higher. This is likely reflected in the stock’s relatively rich valuation.
Yet, the company’s recent financial performance showcases improvement across the board. With strategies in place for further expansion and optimization of margins, Shake Shack seems to be a promising growth prospect in the restaurant industry, making the stock a solid consideration for long-term investors.
