Shake Shack may serve investors a $1 billion IPO
Shake Shack is potentially serving a lofty feast to investors, with a report suggesting the burger chain is preparing an initial public offering that could value it as much as $1 billion, according to a Bloomberg report.
The restaurant chain founded by celebrity chef Danny Meyer first opened in New York City’s Madison Square Park in 2004, and currently has restaurants in just four U.S. states and the District of Columbia, as well as a few locations abroad. Shake Shack operates no stores west of the Mississippi, with most of its U.S. stores concentrated in the New York-New Jersey-Pennsylvania region. It also operates restaurants in Russia, Turkey, the U.K., and a handful of cities in the Middle East.
Shares of restaurant and grocery chains have often performed well on the first day of trading, as investors place a bet on smaller players that they hope can one day be the next Chipotle (CMG) or Whole Foods (WFM). For example, El Pollo Loco (LOCO), a regional Mexican chain that cooks up grilled chicken, saw its shares gain 60% on their first day of trading in July. The debuts of sandwich shop Potbelly (PBPB) and fast-casual chain Noodles & Co. (NDLS) were among the restaurant stocks that doubled when they debuted their stocks. At the $1 billion IPO level that Bloomberg is reporting, Shake Shack would debut at 50 times over its projected earnings of about $20 million this year.
But shares of many of those firms have suffered early setbacks, as results have disappointed investors. As Fortune reported earlier this summer, shares of Potbelly, Noodles & Co., and newly public grocery chains Fairway (FWM) and Sprouts Farmers Market (SFM) are all trading down at least 20% so far in 2014.
El Pollo’s stock has had a more resilient performance. Shares ended the first day of trading at $24 and are worth just over $35 a share on Friday. The performance comes after El Pollo earlier this week reported a sharply higher second-quarter profit as total revenue increased 6.3% to $86.9 million.