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Shake Shack - Fundamental Investment Case

Research

Publication Date: 07 Dec 2018 - By Robert Prather By Robert Prather
Actionable
Differentiated

Equity Fundamental Equity USA Consumer

Shake Shack is an American fast casual restaurant originating out of New York City. The company started out as a hotdog cart in Madison Square Park in 2001.

Qualitative Concerns:
• The restaurant industry appears to be struggling with declining traffic and too many locations
• Fast casual, Shake Shack’s specific category, after years of out-performance and growth appears to be moderating.
• Rising wages could be in the early stages and a significant headwind to Shake Shack and the industry as a whole.
• Competition in the fast casual space is intense with massive store openings not only in burgers but substitute products like pizza and chicken.

Fundamental Concerns:
• Competition and industry headwinds appear to already be impacting financials with SSS declining on top of an easy comparison.
• Even worse the SSS quality is extremely low with traffic negative by a couple 100bps more then SSS and pricing driving all of the growth.
• Despite pushing through higher prices, gross margins and operating margins continue to fall.
• The valuation appears fair but with growth quality much lower the multiple compression could be severe.
• Insiders appear to agree with massive insider selling even with the stock off the highs.

Shake Shack

Source: VR Fundamental

Pages: 43

Released: 07 Dec 2018

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The Author

Robert Prather

Equity Analyst

Industrials, Telecom & Media, Consumer, Technology

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London, United Kingdom

info@reachx.co
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