Shake Shack (SHAK, Financial), the giant fast food chain which was started by a restaurateur Danny Meyer in 2001 in New York’s Madison Square Park, is all set for an initial public offering which is estimated to value as high as $ 1 billion. If this could be the market scenario, Shake Shack would manage to earn maximum earning profits of about $20 million this year. The company has been said to be tapping JP Morgan Chase & Co (JPM, Financial) along with Morgan Stanley (MS, Financial) to manage their sales of shares. This valuation would e lined up with other food chains that have tapped into the investors interests for new stocks.
Company insight
Started as a fast-food single hot-dog stand in Manhattan’s Madison Square Park, Shake Shack has now earned a magnificent place for itself in the fast food business. Giving a tough competition to its competitive rivals, Shake Shack is now aiming to give a heads for a $568 million IPO and global expansion. This might trigger a huge success for the brand in the competitive market. Known to be one of a string of hipster-ish food chain, Shake Shack is eating into McDonald’s (MCD, Financial) profits. While McDonalds is going through a downturn by suffering its 1st fall in annual sales, Shake Shack is all set to ramp up its expansion with the aim of earning profits on the New York stock exchange (NYSE) it is now planning to list 5 million shares, priced between $14 - $16 per share. It has prepared to raise the company profits up to $568 million. However, if it manages to achieve the estimated profits, the IPO will value Shake Shack’s 63 outlets at about $9 million each, or perhaps even 3.5 times more than the value of McDonald’s 35,000 stores each.
With the help of IPO’s funds, Danny Meyer now hopes to introduce10 new stores and outlets per year with the target of 450 over the term. Hence, if Shake Shack achieves the desired goal, it will manage to cover less than 2% of McDonald’s global reach. The picture seems too competitive and tough with regards to a plethora of food-chains in the markets and the ever rising customer demands. Customer satisfaction plays a vital role in the upgradation of the brand and its profit earnings as well.
IPO Road Ahead
It has been now said that Shake Shack is gearing up to lead the parade of IPOs which is scheduled in the coming weeks. Initial Public Offerings (IPO) were seen to be moving slow in the beginning of 2015 but the last week of January seems ready to make up for the apathetic start. This week’s calendar shows total 11 IPOs including the 1st healthcare offerings of the New Year.
Last week’s single IPO was a massive success for Box Inc (BOX, Financial) It priced 12.5million shares at just $14 which was above the expected range of $11 - $14.The stock opened at $20.20 and closed the first trading day at $23.23. As reported by the IPO ETF manager Renaissance Capital, the 4 IPOs have been priced in the U.S so far this year.
According to a research, newly introduced food chains have proven volatile as investments. Companies such as Noodles & Co (NDLS, Financial) and Potbelly (PBPB, Financial), which earned double on its debut last year have missed some of their quarterly revenues and hence, are now trading below the normal IPO price. However, Shake shack has refused to comment on any of their IPO plans as of now. Their new estimated strategies might prove beneficial to the company and might also fetch them a good amount of earning profit.
The Final Shake
Shake Shack is well-known for its burger chains across the places and is specifically appreciated for its ‘Shack Burger’ which is made up of signature sauces and frozen-custard milkshakes. Shake Shack, owned by Union Square Hospitality Group, spans more than 50 locations and over 60 outlets in 9 countries—including London, Moscow and Dubai. Shake Shack, which opened across Middle East, Russia, Turkey along with London’s prime location Covent Garden is earning faster sales. Their calculated revenue in the 1st nine months of 2014 rose by 41% to $84 million. Restaurant researcher Technomic Inc. estimated that Shake Shack earned a whopping $62.3 million sale in the U.S last year. From the investor’s point of view it would be wise to have cash in hand and acquire a slice of the restaurant giant’s IPO before the trading meter starts rolling and after the prices soar post listing, which is quite obvious considering the strong fundamental strength of the business and the positive market vibes, It would be best to sell a small portion of the slice for a shot term quick gain to recover the principal invested amount and hold the rest for a longer term since it looks quite strong and will not fizz out any time soon. It would not be a surprise if it parallels the legendary McDonald’s in the times to come.
