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SHAK vs. CMG: Which Restaurant Stock Had the Better Earnings Report?

Taye Baldinazzo
In the latest trading session, UnitedHealth Group (UNH) closed at $262.19, marking a -1.17% move from the previous day.

Shake Shack SHAK and Chipotle CMG are two of the most prominent “fast casual” restaurants within their industry. Both companies have seen prolific growth in recent years and within the past month released their Q1 earnings reports. Let’s take a look and see which company outperformed the other.

Income and Revenue

Chipotle posted adjusted earnings of $2.13 per share, beating the Zacks Consensus Estimate, and revenues of $1.15 billion, meeting the Zacks Consensus Estimate.

Shake Shack posted earnings of $0.13 per share and revenues of $99.1 million, both beating the Zacks Consensus Estimates.

Breakdown

Chipotle put up impressive numbers in the first quarter, including a 38% beat in earnings estimates, and 33% earnings growth year-over-year. The company saw a strong 7.4% year-over-year increase in revenue. Same store sales growth touched 2.2%.

This success follows a string of food-borne illness allegations and problems associated with the company since its first issue in 2015, a national E.coli outbreak, up until its last issue in 2017, a norovirus outbreak.

Shake Shack has been booming in recent months, beating both consensus estimates and reporting Q1 revenues that were 29% greater than that of last year. The company saw “same Shack” sales growth of 1.7% in the quarter. Earnings increased more than 44% from the prior-year quarter.

Although it may seem that Shake Shack clearly outranks Chipotle based on its earnings and revenue growth rates, one must consider their relative position within the market and within their own growth cycles.

Chipotle is a large-cap company, with a market capitalization of just over $10 billion. Large-cap companies trade in flashy returns in the short run for a much more stable, safe, and long-term option. Shake Shack is a mid-cap company valued at just over $2 billion. These companies are usually expanding at rapid rates, as we see with this quarter’s report, but hold higher risk than a large-cap company.

This is important to note because it provides a metric by which to evaluate the altering growth rates of Shake Shack and Chipotle. An investor may see a 7.4% increase in sales for Chipotle, compared to a 29% increase in Shake Shack, and make some sort of conclusion about its growth prospects. When we take into consideration the market capitalization and size of these companies, this statistic begins to make much more sense.

Bottom Line

Shake Shack and Chipotle posted impressive Q1 earnings reports. Shake Shack’s growth outpaced that of Chipotle’s, but once Chipotle’s’ company size and previously negative customer sentiment are taken into account, we see that their numbers are more comparable.

The numbers seem to suggest that the conservative investor should lean towards the large-cap Chipotle, which will provide more stability even through tough publicity and company problems. More aggressive investors will read the numbers as a sign to invest in Shake Shack, which is still a high growth stock that may provide an opportunity for quick profitability.

Both companies are currently Zacks Rank #3 (Hold) stocks, and whichever looks more attractive will depend on individual investment strategies.

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Chipotle Mexican Grill, Inc. (CMG) : Free Stock Analysis Report
 
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