Dec

30

 Shake Shack has an upcoming IPO. Revenues are now about $150 million and have been growing about 60% / per year. Profit was about $20 million. They're talking about a proposed IPO valuation of $1 billion, or 50 times earnings. I'll buy some if I can get it at that valuation.

The reasoning: it's another Chipotle! Just to check for headroom, Chipotle's market cap is $21 billion. 

"We believe Shake Shack has become a compelling lifestyle brand. We helped pioneer the creation of a new fine casual category in restaurants. Fine Casual couples the ease, value and convenience of fast casual concepts with the high standards of excellence in thoughtful ingredient sourcing, preparation, hospitality and quality grounded in fine dining."

Darien Taylor: "I'd like to produce a line of high quality antiques at a low price."

Bud Fox: "Sounds great. I'll take you public."

Rocky's financial analysis shall follow in due course. In the meantime, he recommends that one noodle at the IPO and subsequent stock performance of NDLS.

anonymous writes: 

First of all, it's fairly likely that this will jump on the IPO day if the overall market stays roughly similar to the current conditions. Why? Because restaurant IPOs have been jumping no matter what, including NDLS and given its NYC roots, a lot of people who buy stocks will find it comfortably familiar. So if you want to flip it, your odds are pretty good. Will it also go up for some time? Probably, since they all have, but hard to tell based on how quickly the new buyers will figure out the financials.

What struck me about this thing yesterday was it's curious road to IPO-dom. It was started by a diversified restaurant operator with multiple brands but curiously only this part is going public. Why? Who knows, but most likely because you can build the restaurants cheaply as they are self-described "shacks", and the other ones are more substantial in nature. Now imagine yourself as a large, slow-growing company that wants to make a billion dollars. You start building "shacks" after your first one is genuinely successful, so you have a GUARANTEED way substantially growing sales every year if you just grow the number of "shacks" every year. Obviously as all students of binary progressions know this can't go on forever, but it certainly can until the IPO (except in this case just lately they kinda let their guard down). So you've got a 50% growth story and now it's worth a billion bucks or so they say. Voila, it's magic!

The profits: for the first 9 months of their respective years, they went down from $4.4 million to $3.5 million. You equity should you chose to invest went down from $37 million to $36 million as your sales grew by 40%, not quite the 50% as in the prior years so nicely pointed out in the bar chart. Oh yes, and the same-store growth has slowed down to next-to-nothing from pretty damn good in years past. So go ahead, buy this 5 million in profit for a billion for the long haul because your manhood depends on it and because burgers are what America is all about.


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3 Comments so far

  1. Rob Ivanoff on December 31, 2014 1:32 pm

    How is this another Chipotle.
    It is not.
    Chipotle was improved not the product, but the distribution of burritoes.
    While Shake Shack is just improving the product, while the distribution can’t be improved because burgers are already everywhere.

  2. Jeff Watson on January 1, 2015 7:48 pm

    Here’s a growing company(Tijuana Flats) that has a couple of locations in my area, and we eat there whenever we want good cheap Tex-Mex which is at least twice a month. In my opinion, they are superior to Chipotle in every way, and offer excellent value and a big menu. http://tijuanaflats.com/about-us/

  3. Spekulatn on January 2, 2015 2:12 pm

    Thanks Mr. Rocky for putting this up. Looking forward to your follow up analysis of the financials.

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