Restaurant Stock Set to Serve Long-Term Investors

The fundamentals check out for SHAK ahead of earnings today

Oct 29, 2020 at 11:34 AM
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Shake Shack, Inc. (NYSE:SHAK) is a fairly new American fast-casual restaurant chain based out of New York. The restaurant chain primarily serves burgers, hot dogs, and milkshakes. Shake Shack launched its first restaurant in 2001 and has since expanded its presence to more than 300 locations globally.

Shake Shack began trading publicly in 2015, with SHAK's initial public offering (IPO) priced at $21 per share. Shake Shack stock has more than tripled since its IPO, but has also seen a lot of volatility over the course of the past five years. Regardless, the food chain is now up 12% year-to-date.

The company is set to report earnings today, after the close, along with various other food-service related stocks that generally can be grouped into our beloved "reopening stocks" in the face of the COVID-19 pandemic. Shake Shack will look to stand out from its peers like Yum! Brands (YUM), Dunkin’ Brands (DNKN), and the Cheesecake Factory (CAKE) in a big way. Whether the company will be able to pull this off is yet to be seen, but let's take a look at how the company has performed historically before we place our bets.

Shake Shack has a market cap of $2.79 billion. Its price-to-book ratio stands at 7.12. As a reminder, we use price-to-book ratio as one of many tools to help investors identify and avoid overvalued companies The company has a trailing price-earnings ratio of 99.02, and a forward price-earnings ratio of 10,000. A company's price-earnings ratio can be used to compare a company against its own historical record over time.

Shake Shack has beat expectations on three of its four most recent earnings reports. In the third and fourth quarters of 2019. As for Shake Shack's upcoming earnings report slated for today, the company is expected to report an EPS of -$0.21, ending the downward spiral seen in the SHAK stock price over the past four quarterly earnings reports.

Shake Shack has grown its revenue annually from 2016 to 2019 by around $100 million per year. The company has more-than-doubled its revenue over this time period. Shake Shack's best year, in terms of total revenue, was in 2019, where it grew roughly $134 million in revenue, clocking a total of $594.5 million. 

In 2016 the company reported a net income of $12.446 million. Shake Shack has steadily grown its net income since posting a loss of ($302,000) in 2017. In 2019, it managed to report the production of a net income of $19.83 million. This year, though, it appears the company will be taking a big "L" on net income.

Shake Shack currently has $190.82 million in cash and $375.19 billion in total debt. The company’s balance sheet shows $1.12 billion in total assets and $673 million in total liabilities. Shake Shack's total equity stands at $451 million.

Shake Shack is in a much more financially stable position than a lot of other companies in the food industry. Despite its inability to maintain profitability like Yum! Brands and Dunkin’ Brands, the company has managed to maintain a positive balance sheet. Shake Shack has set itself up well for the future with a decent amount cash available to sustain the company, should the pandemic worsen or slow-play its way out.

The company's consistent revenue growth is a potential sign of a long-term winning business-model. Overall, the company has strong potential to resume its pre-pandemic growth and continue doing so well into the future, and today's earnings report will be very telling for potential investors.

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