Shake Shack’s value bid into the billions

Shake Shack, a 63-unit fast-casual chain with roughly $5.4 million in annual profits, saw its stock price more than double on the first day of trading, to $52.50, prompting analysts to estimate the chain’s value at $1 billion to $2 billion.

Danny Meyer, who grew Shake Shack from a single hot-dog cart in a seedy New York City park, saw his minority stake in the operation soar in value to $390 million.  He maintains his partnership in the fine-dining operation that spawned Shake Shack, Union Square Hospitality Group.

The blockbuster offering underscores how many investors in restaurant issues are betting on growth, not current economics. At points today, Shake Shack shares were trading at a price-to-earnings ratio of more than 300.

The company generated $83.8 million in revenues for the first 39 weeks of 2014, the timeframe used as a basis of comparison in offering documents.

The company’s domestic stores, or what the company calls “modern roadside burger stands," average $5 million annually, one of the highest average unit volumes in the fast-casual market. At times during today’s frenzied trading, the stores each averaged $27 million in value.

It remains to be seen if Shack Shack’s stock, which closed at $45.90, will suffer what investors call the “sophomore swoon,” or a tendency by high-value restaurant stocks to slide in price after a blockbuster opening.

Union Square Hospitality Group remains a private company.


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