Shake Shack Stock shows each
The stock of Shake Shack (NYSE: SHAK, 30-year Financials) would be significantly overvalued, according to the calculation of GuruFocus Value. The GuruFocus Value is GuruFocus’s estimate of the fair value at which the stock is to trade. It is calculated based on the historical multiples at which the stock has traded, the company’s past growth, and analysts’ estimates of the company’s future performance. If a share’s price is significantly above the GF value line, it is overvalued and its future performance may be poor. On the other hand, if it is significantly below the GF value line, its future return is likely to be higher. At its current price of $ 106.06 per share and market cap of $ 4.5 billion, Shake Shack stock appears to be significantly overvalued. The GF value for Shake Shack is shown in the table below.
Because Shake Shack is significantly overvalued, its long-term stock return is likely to be much lower than the future growth of its business, which has averaged 0.5% over the past three years and is expected to grow by 19. 79% per year over the next three to five years. years.
Link: These companies can offer higher future returns with reduced risk.
Companies with poor financial strength present investors with a high risk of permanent capital loss. To avoid a permanent loss of capital, an investor should do his research and consider the financial strength of a company before deciding to buy stocks. Both cash-to-debt ratio and covering a company’s interests are a great way to understand its financial strength. Shake Shack has a cash to debt ratio of 0.65, which ranks in the middle of the restaurant industry. The overall financial strength of Shake Shack is 3 out of 10, which indicates that the financial strength of Shake Shack is low. Here is Shake Shack’s debt and cash flow over the past few years:
Investing in profitable businesses carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a business with high profit margins offers better performance potential than a business with low profit margins. Shake Shack has been profitable 6 years in the last 10 years. In the past 12 months, the company reported revenues of $ 535 million and a loss of $ 1.09 per share. Its operating margin of -8.35% in the mid-range of Catering companies. Overall, GuruFocus rates Shake Shack’s profitability as fair. Here is Shake Shack’s revenue and bottom line for the past few years:
Growth is probably the most important factor in the valuation of a business. GuruFocus research has shown that growth is closely linked to a company’s long-term market performance. A faster growing business creates more shareholder value, especially if the growth is profitable. Shake Shack’s average annual revenue growth over 3 years is 0.5%, which ranks better than 72% of companies in the restaurant industry. The 3-year average EBITDA growth rate is -72.4%, which ranks in the bottom 10% of companies in the restaurant industry.
Another way to look at the profitability of a business is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) The extent to which a business generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company should pay on average to all of its security holders to finance its assets. We want to have a return on invested capital greater than the weighted cost of capital. In the past 12 months, Shake Shack’s ROI is -3.62 and its cost of capital is 10.88. Shake Shack’s historical ROIC vs WACC comparison is shown below:
In conclusion, Shake Shack (NYSE: SHAK, 30 Financials) stock appears to be significantly overvalued. The company’s financial situation is bad and its profitability is fair. Its growth ranks in the bottom 10% of companies in the restaurant industry. To learn more about the Shake Shack share, you can view its 30-year financial data here.
To find out about high-quality companies that can deliver above-average returns, please see GuruFocus High Quality Low Capex Screener.