Shake Shack is shaking up Wall Street.
Investors clearly are hungry to take a bite out of the New York-based hamburger chain. Demand for shares is prompting the firm to boost both the stock offering and price range for its IPO coming later this week. Shake Shack will now sell 5.75 million shares, up from 5 million, and they’ll be priced at $17 to $19, $3 higher than previously announced.
Yahoo Finance Editor in Chief Aaron Task is not surprised at the increased demand.
“Everyone was looking for the next Chipotle (CMG), which has been a tremendous business and an incredible stock,” he says. “So if you’re an investor, you’re looking around and seeing that Shake Shack has some of the ingredients-- pun intended-- to be like Chipotle.”
Task notes there are a lot of things about Shake Shack for investors to like.
“People feel good about eating there, the food is of a higher quality, they have higher margins, they have very high volume of traffic in their stores,” he points out. “So from a business point of view, on the surface it looks like a great opportunity.”
Task believes the excitement over Shake Shack is a microcosm of what’s happening to the fast-food industry, especially the granddaddy of them all.
“If you look at McDonald's (MCD) numbers, they’ve been ugly now for several quarters going on a couple of years now,” he adds. “And it’s not just Shake Shack-- it’s In-N-Out, Five Guys, Better Burger, the Counter and Smashburger-- there are all these other options out there. And a lot of people are saying I don’t want a burger at all, I want to go to Chipotle or some other option where I think the food is healthier. All of those things have put pressure on McDonald's and you're seeing it in the stock price."
As of Tuesday's close, McDonald's shares are down 11% from their 2014 high.
Task says one of the potential pitfalls Shake Shack and other “boutique” burger joints face is becoming too familiar.
“If Shake Shack expands, does the novelty go away,” he asks. “Right now, it’s hard to find a Shake Shack and when you do, you say ‘wow.’ It’s the same with In-N-Out. But if they expand after a while you’re going to say, ‘Ah, I’ve had In-N-Out, I don’t want it anymore.’ I think all these companies face that risk.”
Still, Task feels the field of specialty burger joints isn’t too crowded…for now.
“We’re going to get to a saturation point for all these quote/unquote ‘better burgers,’” he says. “But I don’t think we’re there yet.”