It's been a rough week for newly public burger chains, as players from the East and West Coasts have seen their shares pummeled on the heels of earnings reports.
This time around, it was Shake Shack (SHAK), one of the buzziest names in restaurants and a stock that has only traded far, far past its initial public offering price. Still, for the second day in a row, the results were met with selling. Shake Shack had risen 2.5% to $46.90 in regular trading, but it fell 6.2% to $44 after the numbers were released.
Shake Shack said revenue for the fourth quarter rose 51.5% to $34.8 million, while same-store sales were up 7.2%. The company lost 5 cents a share, although that included 4 cents of IPO costs -- without which the adjusted loss would be 1 cent a share. Generally, those results didn't seem concerning, as analysts were forecasting a loss of 2 cents a share and sales of $33.1 million, according to FactSet. Same-store sales were seen climbing 4%, Consensus Metrix estimates said.
However, for 2015, Shake Shack said revenue probably would be $159 million to $163 million, up from $118.5 million last year -- Wall Street was at $160.5 million. So the potential that revenue might not get there, should it be at the low end of the estimate by increasing 34.2%, wasn't a development the stock price could withstand.
Shares of Shake Shack traded as high as $52.50, on Jan. 30 after going public, with a low of $38.64 (the IPO had priced at $21). With its trading level, including a forward price-to-earnings ratio above 700, it needed to impress. It's not accurate to compare a fast-growing "better burger" seller to McDonald's (MCD) in terms of valuation, and here it's about the hope of astonishing sales and profits years and years from now. But analysts already have only a $37 consensus price goal on the stock, with a hold rating. To go much higher from here would require significant positives. Shake Shack disappointed in that regard.
On Tuesday, Habit Restaurants (HABT) posted its numbers, its first quarterly report after it went public in November, about two months before Shake Shack. Despite the fact that Habit topped views, and even though its sales projection was above the consensus estimate, traders decided the stock had been lifted too high for the growth rates that are now being factored in. Shares of Habit fell 8.1% Wednesday to $32.66.
Although Habit is the older and bigger of the two, Shake Shack is arguably better known and more closely followed because it was started by Danny Meyer, a famous restaurant name, and it began in New York, the center of American trading and the business media.
Premium burger establishments that are based on natural ingredients and higher-end breads and cheeses are drawing in diners who want alternatives. Shake Shack and Habit are two of these, as are Five Guys, Smashburger and others. Fast-food burger restaurants remain a much, much larger group, but they've had to decide whether to get creative with their menus and offer products that can be viewed as somewhat healthier.
These new burger stores aren't going away. But investors might have to get used to calmer prices in the market.