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Peridot Capital Management LLC

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Based in Seattle, WA
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Peridot Capital Management LLC

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Shake Shack: Another Predictably Overvalued Consumer IPO

January 30, 2015 Chad Brand
shaklogo.png

Shares of burger chain Shake Shack (SHAK) are soaring more than 130% today to $48 on their first day of trading, after pricing at $21 per share. With 36 million outstanding shares, the company (which owns 21 restaurants and franchises another 19) is worth a whopping $1.75 billion. That equates to $83 million per owned restaurant. With the average unit volume for an owned location being $5 million, of which $1.25 million is profit, you should be able to see the wacky pricing for the shares pretty clearly. This is not surprising, though, given how much fanfare consumer brand IPOs have been generating in recent years.

Even if you consider that the company plans to open 10 units a year in the U.S. and let international franchisees open even more overseas, it is impossible to justify a $1.75 billion valuation for a company with a total of 40 units open globally. As a result, I suggest you visit the company's locations rather than invest in the stock at current prices. As we have seen with other consumer IPOs such as The Container Store (TCS), Potbelly Sandwich Works (PBPB), and Noodles and Company (NDLS), it is not uncommon for these IPOs to come back down to earth over time, so definitely monitor the situation if you are tempted to invest in SHAK today, but try to hold off for now.

Full Disclosure: No position in SHAK at the time of writing, but positions may change at any time

In food and beverage
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Peridot Capital Management LLC is a registered investment advisor in the states of Maryland, Texas, and Washington. The firm may not transact business in states where it is not registered or exempted from registration. In most states, the firm is exempt from registration if it has fewer than six clients who are residents of that state. As a result, Peridot Capital Management LLC is free to provide services to residents of every state and applies for registration as required. Individualized responses to persons that involve either the effecting of transactions in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption.

The content published on our blog represents the opinions of Mr. Brand and he and/or his clients may hold positions in securities discussed. Such positions will be disclosed at the time of publication, although subsequent changes to those positions will be made without notification. The information contained in blog posts is believed to be accurate when published, however, mistakes could be made. As a result, do not rely on the content exclusively for your investment due diligence. The commentaries published do not constitute investment advice, as readers’ personal investment goals and risk tolerances will dictate which investments are appropriate for them. Our blog is meant to be one of many sources for readers to conduct their own research into specific investments. Consult an investment professional before acting solely on information found on this site. If you do not have an investment professional to work with, you may contact Peridot Capital Management LLC directly.