Seems like a fairly interesting company. It is one I would view as particularly expensive. Even if the company hits its guidance of low teens in terms of revenue growth, I still do believe it is fairly expensive.
Earnings obviously is not the priority for this company now but it is more so store expansion. But, we would need a relatively large expansion in operating margins in order to hit something I'd view as a fair valuation for a company that is expanding fast yes but doesn't quite have the moat or brand power of some major quick-service type restaurants.
It is trading at over 100x its projected 2025 earnings. Again, this is likely due to the fact that the company isn't really prioritizing earnings at this point in time so that number is likely a tad inflated. Operating margins are low because of rapid expansion and marketing spend. But the difficulty is that spend has to work out or it gets pretty dicey.
Same store sales (or same-shack sales as the company calls it, I found that funny) sit around 3%. When we look to Starbucks during its rapid expansion 10-15 years ago, we often saw same store sales of 5%-8%. So, we're looking at around half the growth they achieved back then. Same store sales is a very important metric to track because it isolates out new stores and compares the organic growth of existing stores.
This growth comes much cheaper than new store expansion. At this point in time, if Shake Shack shut off the taps in terms of new store expansion, 3% SSS is really not all that good. So right now, it is definitely utilizing the more capital intensive form of revenue growth, that being new store expansion.
This type of expansion can work out, but it is much riskier.
Seems like an interesting company, but one that has to have a lot of things go right at current valuations.