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Bull of the Day: Shake Shack (SHAK)

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Have you had a burger from Shake Shack (SHAK - Free Report) ?

If you haven’t and there’s an outlet near you, do yourself a favor and try it out. If you’re not lucky enough to have a Shake Shack in your town, don’t worry…it probably won’t be too long until you do.

Founded in 2001 by master-restaurateur Danny Meyer, Shake Shack has grown organically from a single cart in Madison Square Park in New York city to a global operator of more than 250 fast-casual restaurant outlets across the US - as well as in the UK, Russia, China, Singapore, Mexico, the Middle East an too many more to list.

The company plans to have over 320 locations open globally by 2020.

Meyer got his start as a New York City restaurant manager, then studied culinary arts in Europe before opening his own Manhattan restaurant in 1985 at the age of 27.

The author of several books about restaurants, Meyer is legendary for his intense focus on true hospitality and customer service. His restaurant empire is the envy of the industry and his methods and philosophy are emulated by would-be restaurateur the world over.

Shake Shack was originally intended to be a single-location summertime novelty rather than a chain, but long lines and soaring popularity convinced Meyer and his partners that there was significant opportunity for expansion. In 2004, even they couldn’t have imagined just how successful the venture would grow to be.

Shares of Shake Shack more than doubled on the first day of trading following its 2015 IPO, rallying from $21/share all the way to $47/share – and continued to run all the way to $93/share within the first 4 months. Unfortunately, that rocket ride seems to have been fueled more by enthusiasm for the company’s products than the fundamentals of its business and the shares fell back into the $30s where they stayed for most of the next two years.

By 2018, with over 100 locations open and the revenues to match the original promise, Shake Shack shares began to rally steadily again with the stock once again hitting new highs above $100/share in 2019.

Take a look at these revenues:

The restaurant industry is fiercely competitive and consistently growing sales at 25%/year is almost unheard of. The average Shake Shack outlet brings in between $3M and $4M/year – considerably above the $2.7M average of a McDonalds (MCD - Free Report) restaurant.

The company has been spending heavily on expansion, so net earnings aren’t increasing quite as quickly as revenues, but the estimates are rising fast enough to earn Shake Shack a Zacks Rank #1 (Strong Buy).

Management and cost control are top-notch, so expect Shake Shack earnings to catch up quickly as outlets in all of the intended markets become built out.

A simple menu, loyal customers, great service and a rabid fan base make Shake Shack an enormously popular dining choice. Sensational revenue growth makes it a very solid investment in the sometimes dicey restaurant space.

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