Last Update07 May 25Fair value Decreased 3.60%
Key Takeaways
- Shake Shack's growth strategy includes quadrupling locations, enhancing margins, and leveraging culinary innovation to boost revenue and customer engagement.
- Expansion of licensing business and drive-thru innovations are expected to improve efficiency, satisfaction, and diversify revenue streams.
- Economic challenges, weather disruptions, softening tourism, rising competition, and increasing costs could pressure Shake Shack's revenue and margins.
Catalysts
About Shake Shack- Owns, operates, and licenses Shake Shack restaurants (Shacks) in the United States and internationally.
- Shake Shack is in a significant growth phase, aiming to more than quadruple the number of company-operated Shacks to at least 1,500, which is expected to fuel long-term revenue growth.
- The company plans to enhance restaurant-level profit margins by at least 50 basis points annually over the next three years through operational improvements and supply chain efficiencies, impacting net margins and earnings positively.
- Shake Shack is leveraging culinary innovation and limited time offers (LTOs) to drive frequency and traffic, which could increase revenue through higher customer engagement and spending per visit.
- The roll-out of new drive-thru digital menu boards and combo options is expected to improve operational efficiency, order accuracy, and guest satisfaction in drive-thrus, potentially impacting profit margins and revenue.
- Shake Shack is focused on expanding its licensing business with strong partners and opening new Shacks, particularly in high-growth areas, contributing to total revenue growth and more diversified revenue streams.
Shake Shack Future Earnings and Revenue Growth
Assumptions
How have these above catalysts been quantified?- Analysts are assuming Shake Shack's revenue will grow by 14.2% annually over the next 3 years.
- Analysts assume that profit margins will increase from 1.0% today to 5.2% in 3 years time.
- Analysts expect earnings to reach $99.1 million (and earnings per share of $2.14) by about May 2028, up from $12.4 million today.
- In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 61.4x on those 2028 earnings, down from 319.8x today. This future PE is greater than the current PE for the US Hospitality industry at 21.9x.
- Analysts expect the number of shares outstanding to grow by 1.48% per year for the next 3 years.
- To value all of this in today's terms, we will use a discount rate of 7.91%, as per the Simply Wall St company report.
Shake Shack Future Earnings Per Share Growth
Risks
What could happen that would invalidate this narrative?- Economic uncertainties, such as geopolitical and macroeconomic challenges, could impact consumer spending, leading to pressure on same-store sales and overall revenue growth.
- Weather-related disruptions and external factors affecting major markets like New York and Los Angeles have previously impacted sales and could continue to do so, affecting revenue stability.
- High exposure to markets with significant tourism, which has been softening, presents a risk as declines in international tourism could hinder revenue from these key markets.
- Increasing competition, including promotions and discounts from other fast food and casual dining chains, could pressure Shake Shack’s value proposition and ultimately affect its revenue and margins.
- Rising costs, such as beef price inflation and potential tariffs, could further pressure margins despite efforts to improve operational efficiency and supply chain management.
Valuation
How have all the factors above been brought together to estimate a fair value?- The analysts have a consensus price target of $109.955 for Shake Shack based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $145.0, and the most bearish reporting a price target of just $85.0.
- In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.9 billion, earnings will come to $99.1 million, and it would be trading on a PE ratio of 61.4x, assuming you use a discount rate of 7.9%.
- Given the current share price of $98.68, the analyst price target of $109.95 is 10.3% higher.
- We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.
How well do narratives help inform your perspective?
Disclaimer
AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.