Friday, January 30, 2015

Shake Shack: A delicious new stock joins the NYSE

Lets welcome SHAK to the NYSE


Regardless of whether I plan to invest in a company or not--- IPOs* are exciting days in my book. Specially when it comes to companies and/or services I am familiar with and have experienced in the past. My first time at a Shake Shack location was back in 2013 when I worked in the Wall Street area of Manhattan. I visited this particular location by Fulton street. Despite what felt like an eternity waiting for a burger and fries (I was on my lunch hour) the wait was well worth it. I don't remember experiencing a more delicious burger in my lifetime. The burgers are freshly made to order, which is one of the reasons why I had to wait (plus, the long line in front of me).

After filling for an IPO* in late December, things apparently moved quite quickly for Shake Shack as today is their stock market debut! The initial public offering price has gone from an originally disclosed $14 all the way to $21, which is the price at which the stock is set to start trading today, as per the WSJ.

I don't personally plan to invest in the company any time soon mainly because I don't invest during an IPO day or any days near it for any company. I like to wait for the "hype" to settle in order to be able to see with clear lenses rather than getting swiped up by the excitement. However, after doing some research on the company's background and learning some facts I was not aware of, I realized this could actually be a good investment. However, I will sit and watch for now. 

*IPO: Stands for Initial Public Offering. In simple terms, is the name given to shares of a company that have never traded in the stock market before. Think of it as an "initial offering" to the market. 

Company Background

As a former MBA student, I always find stories of entrepreneurship  pretty inspiring. As per their website-- founder Daniel Meyer, opened the first Shake Shack location around 2001 and was originally meant to be a simple hot dog cart in the middle of Madison Square Park in New York. The mission behind the cart was to use the sales to support the Madison Square Park conservancy first art installation. For three summers in a row, the cart became increasingly popular. In 2004; a permanent location was opened in the park (which is still there today). 


Today the company has several U.S locations in Pennsylvania, Las Vegas, Washington DC, and Chicago. They've also branched out internationally with locations in the middle east, United Kingdom, Turkey and Russia. 

Competitive Advantage (differentiation)

This company is far from a McDonalds or a Burger King heating up frozen burger patties. They seem to be following the new trend of pure, hormone-free, healthy ingredients that other super successful companies have been adapting in the past several years (think Chipotle). As most of us have probably noticed; the popularity of "ingredient-conscious" restaurants have increased tremendously during the past several years. Even if we are eating a hamburger, I guess that 'psychologically speaking' we'll feel a lot better about it knowing that the ingredients are pure and free of antibiotics or any other artificial chemical out there.  Millennials and people in general are looking to be healthier and if the food is also amazingly delicious, thats a win-win. 

Check out the menu description of the burger patties:
"100% natural angus beef. No hormones and no antibiotics ever. Our proprietary Shack blend is freshly ground. All burgers are cooked medium unless otherwise requested". 

This theme is pretty consistent throughout their entire menu. 

Aside from hamburgers, fries, and shakes, their food menu also includes hot dogs, a delicious variety of "frozen custards"- dense frozen goodies, crinkle cut fries, and get this-- even meals for your 4-legged friend (they have a "woof" category in their menu at certain locations). Here is their NYC menu at a glance.

Financials/"Prospectus Info"
  • A total of 63 restaurants world-wide
  • Out of the 63 restaurants: 31 are company-operated (including seven in Manhattan), 5 are licensed throughout the U.S, the remainder are internationally licensed, including 20 in the middle east. 
  • Each restaurant is valued at around $10.7 Million
  • Sales for the trailing 12 months were of $107M with profits of $0.66M 
  • With an IPO of $21 a share, the company is being valued at $745.5 million <-- whether or not this is a little rich for a 'burger joint' is up for debate. 
  • The deal has already sold 5 million shares to institutional investors, raising $105M (reason why IPO price shoot up to $21 per share)
Plans for Growth and Expansion

One of the main reasons why companies go public is to gather substantial funds that will allow it to expand and grow to its best potential. The "Shack" is no exception. Their prospectus indicates that beginning fiscal year 2015; they plan to open at least 10 company-operated restaurants in the U.S per year with a goal of at least 450 new restaurants in the U.S. Plans for expansion at the international level were not quite clear but appears they may continue the licensing model for those locations.

Competition

Lets not forget about other companies out there with a "similar" concept of serving delicious burgers made to order. A couple from the top of my head are In-N'-Out burgers and Five Guys. The latter already has a strong presence in NYC and while we are still waiting for the privilege of an in n' out-- I would not be surprise if they appear at a corner near us in the near future. These companies I just mentioned are not yet publicly traded but who's to say that's not already in the works? Lets stay tuned and see what happens. 

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And that's all folks. Thank you for reading. Join me today in observing how this stock does during the stock market debut. Exciting times for the Shake Shack team, ladies and gents.

Thanks for reading and cheers to profits!

Mabel