Why Shake Shack Needs Chicken to Justify $3 Billion Market Value

Services

Published: May 21, 2015 1:50 pm

Last Updated: April 28, 2020 10:23 am

Source: Harold's Chicken Shack

One of this year’s most successful initial public offerings (IPOs) was from Shake Shack Inc. (NYSE: SHAK), which priced at $21 a share, doubled on its first day of trading and closed at more than $82 a share on Wednesday. Shares are up another 8% Thursday on word that the gourmet burger shop is looking to add chicken to its menu.

CNBC reported Thursday morning that one of Shake Shack’s units, called SSE IP, has filed a trademark application for the term “chicken shack,” presumably as a prelude to opening stores under that name. The company needs to expand fast to grow into its market cap of more than $3 billion.

McDonald’s Corp. (NYSE: MCD) has a market cap of around $95 billion and more than 36,000 stores around the world. Shake Shack’s $3 billion market cap is based on a total store count of 66 as of April 1. McDonald’s market cap is about 30 times larger than Shake Shack’s, but its store count is nearly 550 times higher. How much will Shake Shack be worth if it reaches 1,000 stores? Or 2,000?

OK, so McDonald’s has been around forever (actually 1955, which only seems like forever) and Shake Shack has been around since 2004. The point is Shake Shack shares are a virtual currency that the company can use to expand right now. And if that expansion includes a “chicken shack,” we even have a suggestion.

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A chain of fried chicken restaurants that got its start even before McDonald’s might be a good partner. No, not the one with guy in the white suit. We’re talking about Harold’s Chicken Shack, a Chicago-based chain that was started in 1950 and continues to this day with stores in cities as diverse as Detroit, Milwaukee, Las Vegas and Dallas. Harold’s already has the name, the product and probably at least as many locations as Shake Shack. What’s not to like?

Shake Shack’s shares traded up about 8% in the early afternoon Thursday to $89.54, after posting a new post-IPO high of $90.52 earlier. The stock’s low is $38.64, and the consensus price target of $45.20 needs a little revision. Even the highest target — $60 — is a little behind the curve.

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