I love Shake Shack. It is my favorite burger joint on the planet. I’ve never seen a fast food restaurant as busy since MCD in the 1980’s or CMG right now. Although I love SHAK, I am having a hard time coming to grips with the $500 million+ market cap, despite being smaller than HABT.
Here is how SHAK, HABT and CMG stack up.
So let me get this straight: SHAK is going to trade more than 2x HABT’s market cap, yet do $60 million less in revenues and sport a growth rate equal to them? This smells of NYC snobbery, considering SHAK has 7 stores in the city. I am going to buy SHAK, one way or another. I am comfortable with owning it and allowing the growth to fill in the high valuation.
Again, SHAK is going to trade upwards of 3.5x sales, and HABT is at 1.5X.
UPDATE: Fucking shit data was wrong on HABT, using Yahoo finance. I had checked it against another source and was the same. The valuation argument goes out the window and this is simply a long term value proposition.
Only one thing makes sense here: HABT is significantly undervalued and should trade upwards of $50 in 2015. Every stupid restaurant stock on the market has rallied over the past month, but HABT. The time has come for an extreme melt up.
Regarding the genre of owning higher end casual dining restaurants: this is the single best place to be in retail. You get the chance to buy HABT or SHAK in its nascency, with the advantage of not having McDonald’s, or some VC, incubate them– like CMG or BWLD–for an inordinate amount of time before coming public. If the concept works, which we know it does, all that matters is store growth.
Back in 2001, BWLD had 150 stores. That stock is up 300% over the past 5 years.
How big is the hamburger market?
How about 35,0000 stores large?
Domestically, there is room for at least 2,000 franchises for SHAK and HABT, who will rob and steal market share away from old legacy, lesser quality names, like MCD and QSR and WEN.
Back in 2002, CMG had about 250 stores. With the advantage of hindsight, how would you like to invest in CMG back then?
That stock is up 641% over the past 5 years.
SHAK and HABT are to BWLD and CMG what they were to MCD and QSR, only much, much earlier–which presents early investors with a unique opportunity for massive upside potential.
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HABT will zoom soon, as LOCO is now.
And buy RAVE on next pullback for 3 to 5 year hold. Great renewed growth story there too.
This analysis merits serious consideration.
I love when you write these articles Fly — they are always most kickass.
[please stop reading my comment now, because I enjoy my comment privileges]
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ok so JUST FOR DEVILS ADVOCATE re: valuation differential is Shake Shack avg 2013 unit volume is > 3x that of Habit, and store growth is higher. So even though comps > at Habit, you have more ARPU, you have more volume (which is the biggest driver) and you have more stores opening with SHAK. Unless cannibalization kills the unit volume (and very well may, which I think was a problem for BWLD early on), that clearly is a strong card. HABT may be undervalued, or it may just be a newish IPO finding it’s footing. I suspect more the latter, which doesn’t preclude it from trading higher after a little more data comes out.
Despite HABT habit having better comps and better EBIT, going to be hard to put in a dent in those other compares from SHAK. And neither (really) hold a card to Chipotle on the margins front. That *may* explain some of the premium on SHAK. Also, I’m biased b/c In-N-Out, blessed be to their glorious chain.
And keep in mind for those reading, this is not advice — they will almost certainly both outperform — and you are a bozo of the third degree if you don’t see the parallels Fly is pointing out. Just using the comments sections as designed — to comment about the article.
“I love when you write these articles Fly — they are always most kickass.”
Ditto.
50% of SHAK’s stores are franchises, which is lower margin, less quality control.
Wall St agrees with you. Hence, pricing for SHAK is multiples higher than HABT.
That is good to know, because I was wondering how that might effect the other data. Do you have any inference long term if that’s better or worse? Clearly was good for MCD.
Definitely an exciting time to be a hamburger man bout that #hamburgerlife
Off to cook some food. Love the feedback. You have all of the knowledge fresh in your mind, taking those bastard classes.
They are indeed bastardly as fuck, rough sledding these days. But it is cool to learn new things too.
Al Shaya that runs the Middle East franchises of Shake Shack probably does a better job of quality control than the company run stores in the US.
also, considering eggs in CA are now FIVE FUCKING DOLLARS PER DOZEN aka the $100 dollar tomato, b/c of recent no chicken left behind legislation, probably a play involved with that too (to the downside).
One important aspect of comps that does not show in numbers is new stores always have lower margins and SHAK doesn’t count growth until store is 24 months old. In other words, CMG has the advantage of having a mature brand and store, unlike both HABT and SHAK whose stores are basically brand new and haven’t ‘matured’ the requisite 24 months before achieving optimal margins.
another great fact to know — very relevant. HABT being cheaper may also mean more under-promise over-deliver. Would be cool to see graph of restaurants to maturity or something along those lines
I guess it boils down to this for me:
how many stores will SHAK and HABT have in 5 years?
When we started iBC I was a big buyer of BWLD in the 30s and 40s. I am sure you remember.
If these two undergo similar store growth, by hook or crook, both share prices will explode.
I’ll HABT Fly way!
http://www.thrillist.com/eat/nation/best-fast-food-burger-chain-in-america
Can anyone find when options will start trading on HABT?
Looking forward to Friday. Shake Shack on the NYSE and Spark Therapeutics on the NSDQ. BOX’s debut last Friday bodes well. Haven’t decided which ticker to trade yet.
Fly, are you using Yahoo Finance for the market cap on HABT ($257mm)? I think that’s way wrong, and only uses the 5mm Class A shares, which only represent 32% of all actual shares. I think Google Finance actually has the cap right at $790mm, which would make price/sales even higher than SHAK’s IPO, which makes more sense, considering SHAK is going to pop after the IPO.
Looks like you are right on the market cap point.
fucking data
Bobby
Yes I did use Yahoo for this. I never bought HABT based on fundamental research. This has always been a buy and hold idea and I never bothered to do compares, until today. The data on Yahoo is wrong and the argument for HABT being cheap is erroneous. Nevertheless, SHAK will likely come public at 10x+ sales after opening spike
The average Shake store did $5MM in sales in 2013?????
Great article, but your 2nd sentence is lunacy. We all know In n ‘Out is the worlds best burger joint.
Gotta think the imminence of a SHACK IPO has weighed on HABT.’s performance to date. Would expect it to play catch-up once everyone realizes how comparatively expensive SHACK is.
They just opened the one up in Chicago across form my office, it’s pricing point is HIGH compared to the size of the burger.
The one by the Marriott? Can’t wait to try it when I’m in Chicago for work later this year.
But the quality, it’s one of the tastiest burgers around.
Etrade offering allocations. I guess I should bite.
I miss Char-Hut. JACK is similar though
The HABT pick is Warren Buffet style
Sit wait and get rich
I’m buying the poor man’s SHAK…Fuddrucker’s – $LUB…profits are lacking and thinly traded but I like the potential.
Prepare for a crash.