Burgers, shakes and math.
That’s the story for Shake Shack (SHAK), which is trading for the first time today on the New York Stock Exchange. It’s already been a good start for the New York-based hamburger chain. The stock soared right out of the gate following a big initial public offering last night, where shares sold for a more-than-expected $21 each.
So why is yet another burger joint generating such excitement? Yahoo Finance Columnist Rick Newman says it’s easy-- look at the numbers.
“If you’re a Shake Shack investor, you’re thinking all we need to do is take 0.3% of market share from McDonald’s (MCD), and we’ve got a gangbuster business,” he points out. “So the thinking is if they can squeeze a few of those people who are outgrowing McDonald’s, that’s great news for Shake Shack.”
In its IPO, Shake Shack raised $105 million. Newman thinks the demand for a piece of the company is based on those coming late to the restaurant investment party.
“Wall Street is behind the trend on this one,” he says. “It still seems like a new story that you can still sell fast food that doesn’t come in frozen blocks from some supplier from who knows where. This is not news, nobody thinks this is a new idea here.”
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Yahoo Finance’s Jeff Macke also finds it curious that investors seem to feel there’s a great change afoot in the restaurant industry.
“There’s nothing new under the sun,” Macke argues. “Benihana’s was cooking under the table for you, we’ve had salad bars for years and I’ve always been able to cook at home. So this ‘build your own hamburger’ is not this mind shift that people are making it out to be.”
Still, Newman does see one advantage that boutique burger places such as Shake Shack and Habit Burger (HABT) have over the traditional fast-food outlets.
“People are willing to spend a little extra money on better food as long as it arrives quickly,” he notes. “That’s the rationale behind Shake Shack. “
And Newman feels there’s no reason to fight Wall Street’s appetite for these kinds of stocks.
“I guess we’re not at peak burger saturation,” he says. “There appears to be enough room in Americans’ bellies for one more burger chain at least.”