Shake Shack Inc (SHAK, Financial) has recently experienced a daily gain of 9.59%, and over the past three months, it has seen a gain of 5.63%. With an Earnings Per Share (EPS) of $0.04, investors are keen on understanding whether the stock is modestly undervalued. To shed light on this query, a detailed valuation analysis is presented, guiding readers through the financial intricacies of Shake Shack (SHAK).
Company Introduction
Shake Shack Inc is a modern-day roadside burger stand known for its delicious classic American menu. Their premium burgers, made with all-natural Angus beef, are served alongside hot dogs, crispy chicken, and an array of beverages. With a market cap of $2.60 billion and a stock price of $66.83, Shake Shack's valuation is brought into focus when compared to the GF Value, an estimated fair value of $79.34. This comparison is crucial for investors looking to gauge the company's current market position and potential investment value.
Summarize GF Value
The GF Value is a proprietary measure that reflects the intrinsic value of Shake Shack (SHAK, Financial), considering historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. Currently, Shake Shack's stock price is below the GF Value Line, suggesting that it may be modestly undervalued. This positioning indicates a potential for higher long-term returns relative to the company's growth, making it an intriguing option for value investors.
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Financial Strength
Investors must scrutinize a company's financial strength to avoid the high risk of permanent capital loss. Shake Shack's cash-to-debt ratio of 0.37 places it in a better position than half of its industry peers. With a financial strength rating of 6 out of 10, Shake Shack demonstrates a fair level of financial stability, which is a key factor when considering an investment.
Profitability and Growth
A profitable company signifies a safer investment. Shake Shack has maintained profitability over the past decade, with a recent annual revenue of $1 billion and an Earnings Per Share (EPS) of $0.04. However, its operating margin of 2.34% suggests room for improvement. Additionally, Shake Shack's average annual revenue growth is commendable, yet its EBITDA growth rate indicates challenges in growth compared to industry counterparts.
ROIC vs WACC
Evaluating Shake Shack's Return on Invested Capital (ROIC) against its Weighted Average Cost of Capital (WACC) reveals that the company is not currently creating value for shareholders, as the ROIC is significantly lower than the WACC. This comparison is a critical aspect of assessing the company's profitability and potential for growth.
Conclusion
In summary, Shake Shack (SHAK, Financial) appears to be modestly undervalued, with fair financial health and profitability. However, its growth prospects are less promising when compared to other companies in the restaurant industry. For a deeper understanding of Shake Shack's financials, investors can explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
