Is Shake Shack stock buying?

Shake Shack (NYSE: SHAK) has turned things around this year. After losing more than half of its value in March 2020 at the onset of the pandemic, shares are once again flying high. With just weeks left until 2021, Shake Shack stock sports is gaining a 50% gain so far. To be fair, the improved burger chain still faces challenges caused by COVID-19 and follows changes in consumer behavior. But he has a plan – and enough sums of money. Investors could choose restaurant stocks far worse.

Digging out of a deep hole

Restaurants have been among the toughest industries with the pandemic, but Shake Shack in particular has deep scarves. Based in the Northeast and densely populated urban areas, Shake Shack took a steep tumble due to locking and social distance necessary to stop the spread of the novel coronavirus.

But after a rather ugly second quarter, similar Shack sales trends (foot traffic and guest ticket size at stores open for at least two years) have started to develop in order. A recovery wave of diseases in November and December could damage recovery, but this chain is making progress. With vaccines now going out, shareholders will see a glimmer of hope on the horizon.


Q1 2020

Q2 2020

Q3 2020

October 2020

Year-over-year sales decline





Data source: Shake Shack. Index by author

Things could have been worse, he speculated

Of course, increasing sales at the current stores isn’t Shake Shack’s only growth tool. This company is strongly opening new locations, and has re-opened its development pipeline after a short break in the spring. In fact, thanks to new places dragging burgers, hot dogs, and snacks, revenue was down 17% significantly less year-over-year in the third quarter: it wasn’t bad given the sales metric ugly of the same Shack.

Adjusted earnings before interest, tax, depreciation and interest (EBITDA) were positive in the last quarter, at $ 8.2 million. That was much better than Shake Shack ‘s $ 8.8 million EBITDA loss in Q2. And with new stores cutting ribbons again and 50 to 60 more openings planned for 2021 (35 to 40 company properties, 15 to 20 allowed for licensees), Shake Shack is well on its way to reviving the t pre-existing growth pathway.

Woman eating burger, fries, and shaking.

Image source: Getty Images.

Premium price, but for a reason

As bad as things got, Shake Shack is indeed emerging from the crisis in even better financial shape than before. He raised new money by issuing new stock in the spring. At the end of September 2020, he had $ 175 million in cash and cash equivalents, $ 16.9 million in marketing investments, and no debt on his balance sheet.

This extra liquid will come in handy when Shake Shack sails the world after a pandemic. They plan to invest in store formats that include drive features, walk-up windows, and extended build and delivery features. In addition to building these new spaces, the company also plans to relocate existing stores to provide a better location for consumers who may be food-conscious. inside even after hitting COVID-19.

Such a business is looking up again, but is the stock a purchase? For the right investor, I would say that – in particular, an investor who can be patient with what is definitely going to be a bumpy road ahead. Shares are priced at a high price that competes with such fast-paced peers Mexican Chipotle Grill (NYSE: CMG), even though Chipotle has already returned to growth and is operating at an envious profit. Suffice it to say, investors expect Shake Shack to be able to expand at a rapid pace in the coming years. However, the price valuation of Shake Shack could (rightly) reassure many investors before they pull the grip on a purchase.

SHAK PS Ratio Chart

Data with YCharts.

Personally, I keep the small portion in Shake Shack that I brought back in the spring, when the restaurant industry was still up in the air. I’m not buying anymore at this point, but if investors think Shake Shack will be a much bigger chain than it is now in a decade, it’s worth considering. Shake Shack definitely has money to take off.