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Shake Shack Doubles On Debut

Friday, 30 Jan 2015 11:52 AM

01/30/15 11:52:40 AM

Fast casual restaurant chains like Chipotle have been a hit, but Shake Shack shares may have a hard time sustaining themselves, says a veteran IPO analyst. Fred Katayama reports.

A hot start for what began as a humble hot dog stand. Shake Shack’s shares sizzled at the open on its debut as a public company, more than doubling at the gate. valuing the company at nearly $2 billion.

The premium burger chain raised $105 million after pricing above expectations, reflecting strong demand. The 14-year-old chain has attracted a cult following and a relatively rich clientele. Customers often stand in line for its rich creamy milkshakes and hamburgers free of hormones and antibiotics.

That hot dog stand in a New York park founded by a successful high-end restauranteur has grown into an international chain with 63 restaurants stretching from Las Vegas to Dubai. Shake Shack plans to open 10 restaurants in the U.S. each year and eventually expand to at least 450 locations. It’s profitable, earning $4.5 million in the 12-month period ended September.

Customers and investors have a big appetite for fast-casual restaurants like Shake Shack and Chipotle. That has slammed chains like McDonald’s, which replaced its CEO this week. Chipotle’s stock has risen 22-fold since it debuted in 2006, and gourmet burger chain Habit Restaurants’ shares are up 83 percent since going public two months ago.

Shake Shack shops pull in double the average sales of a Chipotle outlet partly because they sell alcohol. But research director Francis Gaskins said, ” I’m not really sure they can expand high volume Shacks to the rest of the country. Chipotle targeted the mass market. I think Shake Shack’s stock will open up high and have a hard time staying there over time.”

In the early going for now, investors are finding Shack’s stock as tasty as its shakes.

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