Shake Shack, not surprisingly, soars as burger seller's IPO starts trading
In one of the leading non-surprising, yet still-most-talked-about news items of 2015, shares of Shake Shack (SHAK) were soaring on their first day of trading Friday.
The New York-based burger chain, which had 63 stores when it filed for its initial public offering, was recently trading at $48.60. The stock opened at $47, more than double the $21 where it priced Thursday. Demand had been significant, with the company initially planning to price its shares at $14 to $16, then increasing that to $17 to $19. That still wasn't enough on Wall Street, and the pricing turned out to be $2 above even the top of that estimate.
What the early trades demonstrate is the major interest in getting in on the issue at the outset. Shake Shack, started by restaurant entrepreneur Danny Meyer, had its beginning as a hot dog cart in 2001. It's been buzzy for several years now, drawing crowds in New York and other locations where it opens -- about half of its stores are overseas. Investors, meanwhile, are drawn to it because they're favoring fast-casual restaurants, those names like Chipotle (CMG) that promise better, more natural ingredients while charging premiums to standard fast-food operators.
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The "better burger" segment where Shake Shack does business has grown in popularity, as companies such as In-N-Out, Smashburger, Five Guys and Habit Restaurants (HABT) build out. Diners interested in options other than McDonald's (MCD) and Burger King led this to a $2.4 billion industry in 2013. Still, it's a small part of the overall U.S. burger restaurant group, which that same year had about $72 billion in sales, according to food-industry researcher Technomic. Half of the total revenue was from McDonald's on its own.
Of course, the fact that these smaller burger makers are small is a key part for investors. Shake Shack believes it can get to at least 450 stores in the U.S., so the idea is that its growth potential is tremendous as customers switch over from the old, traditional stores. However, beef has gotten pricier, and Americans are eating less of it, over time. They've been preferring chicken instead, meaning most hamburger providers offer non-burger items on their menus.
Shake Shack's IPO follows that of Habit, a California-based burger store owner, by a couple of months. It priced at $18 in November, then opened at $30. Eventually, the shares climbed to $44, but lately it's fallen to around $32.
