Shake Shack Inc (ticker: SHAK) shares got a bit of a bump on Wednesday after Piper Jaffray initiated coverage of the stock with an “outperform” rating and said the company should continue to grow its revenue by at least 20 percent annually for the foreseeable future. In the new research note, analyst Nicole Regan says Shake Shack’s culture, hospitality and growth make it a unique investment opportunity in the restaurant space.
“We view a steadfast commitment to developing, maintaining and transporting this culture as one of the most important factors in determining the company’s ability to replicate its industry-leading sales, profitability and unit growth on a go-forward basis,” Regan says.
She also sets a $44 price target for Shake Shack’s stock. The target price represents an enterprise value/EBITDA multiple of 24 based on Piper Jaffray’s fiscal 2018 earnings projections.
Regan projects that SHAK will maintain at least 20 percent annual revenue growth in the long term as it expands its number of locations. The combination of unit growth and positive same-store sales growth should allow Shake Shack to double its earnings within the next five years, Regan says.
“The company’s portfolio of domestic, company-owned restaurant locations (at approximately 71 currently and growing) is likely to remain the principal focus for the foreseeable future given the company’s belief in the long-term unit potential for approximately 450 stores domestically,” Regan says.
As of the first quarter, there were 152 Shake Shack locations. Roughly half (52 percent) are domestic, company-owned locations, 42 percent are international licensed locations and the remainder are domestic licensed locations.
While the company focuses on company-owned, domestic restaurants, adding licensed locations is a compelling high-margin, low-expense growth opportunity as well, Regan says.
The restaurant business is…
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