Shake Shack’s investor meal is overpriced

A meal is seen at Shake Shack at the Woodbury Common Premium Outlets in this photo illustration in Central Valley, New York, U.S., February 15, 2022. REUTERS/Andrew Kelly

NEW YORK, Feb 18 (Reuters Breakingviews) - A flurry is hitting Shake Shack (SHAK.N). The U.S. burger chain reported disappointing fourth-quarter earnings due to a convergence of events, including inflationary pressures, closures related to a Covid-19 resurgence and ongoing remote work. Food and labor costs soared 30%, forcing the company to hike prices again read more while urban same-store sales were down 4% versus the same period in 2019. Shake Shack also forecast lower-than-expected revenue in the first quarter of up to $201 million, below analyst estimates of $211 million, according to Refinitiv.

Shares of Shake Shack fell 15% at the open on Friday morning before recovering. Even so, the $3 billion chain is worth over 50 times 2022 EBITDA estimated by research firm BTIG. That compares with rivals Chipotle Mexican Grill (CMG.N) at more than 25 times forward EBITDA, and Starbucks (SBUX.O) and McDonald’s (MCD.N) at 16 times, according to Refinitiv. Shake Shack’s unappetizing future doesn’t merit the pie-in-the-sky valuation. (By Jennifer Saba)

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(The author is a Reuters Breakingviews columnist. The opinions expressed are their own.)

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Editing by Gina Chon and Pranav Kiran

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