SHAKE SHACK INC. (SHAK) – Finishes Down 2.34% on IPO Day

Investors apparently did not like the taste of Shake Shack on it’s original IPO day, shares finished down $1.10 per share from the open of $47.00 a share.

Now if you had the exclusive right to invest in Shake Shack before the open, enjoy your free money. But for 99.9+% of the world, Shake Shack finished down on it’s first day of trading.

Frankly I’m amazed it did not fall more from it’s $47.00 a share open, given the company apparently had only 82 million in revenue for 2013, with a projected $100 million or so for 2014 (yet to report). This stock is the definition of speculative growth, a stock that to me personally seems incredibly overpriced.

Only two things matters to me personally when it comes to SHAK, the Market Cap and the Revenue. The Market cap $1.63 billion and the revenues around 1/16th of the market cap in 2014 (hopefully). Now if we were going to speculate on P/E and try to put these numbers into “real world” terms, let’s assume shake shack can pull 10% net profit margins. That means that if the $100 million reporting comes and the company actually becomes profitable at 10% profit margins, the stock would be trading at $1.63 / $.1 = 1630 P/E. Did I mention Chipotle (CMG) is currently trading around 12?

Look I get that it’s a growth play, but this has under 100 current restaurants, no real profits, no tremendous advantage, lots of competition, and likely far higher food costs than Chipotle (CMG).

To me, far too much “someday” growth has been valued in, and I am a complete avoid. Since I’m also not one to get in the way of the power of speculation, I’ll also avoid shorting SHAK. I hate playing IPOs like this, since it’s likely by the time successful expansion becomes more prevalent, it will be two weeks already priced into the stock.

 

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