When Will Shake Shack Trade Like Chipotle?

I can still remember the first time I bit into a Shake Shack hot dog. I was living in NY in 2002 and after work I used to walk home past the original stand in Madison Square Park off 23^rd. There was always a line, which was annoying, but if you timed it just right you could limit the wait to 15-20 minutes which seemed worth it. Later, the burgers came. Sure, the original ShackBurger tasted eerily similar to a Wendy’s hamburger, but the freshness of the bun and the way the cheese melted in your mouth put it over the top. I used to get my burger and eat in approximately 16 seconds flat, an inhaling record that would make Joey Chestnut proud.

I moved to the west coast in 2007 and have spent the past 13 years without access to a Shake Shack. It’s not been easy. On more than one occasion, I’ve gone through an airport somewhere that had a Shake Shack and gotten so excited that I’d overeat and suffer horrible heartburn for days afterwards. That’s all about to change as the company is nearly ready to open its first Oregon storefront in the heart of downtown Portland. I’m excited to be reunited with the ShackBurger, the ‘Shroom Burger, the Crinkle Cut Fries and the frozen custard.

But I’m still waiting for the stock to pop. Why hasn’t Shake Shack become the next Chipotle? Is the product not as good? Are the profit margins slimmer? Is the larger retail space more expensive to rent? To be fair, the company’s shares have more than doubled since April but that’s not the type of growth I’m talking about. I’m wondering why, over the course of the past five years, the stock has gone up and down like a yo-yo and never experienced huge Chipotlian-style growth?

I bought shares in 2015 and more recently in 2019 hoping the company would ramp up expansion efforts and generate huge returns for investors for years to come. I was wrong. Danny Meyer always maintained that he didn’t want to rush expansion and he wasn’t kidding. The company has taken its sweet time rolling out new storefronts. As of today, there are roughly 275 Shake Shack locations throughout the world. They did open 73 new stores in 2019, a 32% increase. I guess things are moving in the right direction but by comparison there are now 2,622 Chipotles in the world. It’s hard to drive more than two miles in any direction and not run into a Chipotle.

Chipotle also does a much better job of marketing. After the ‘bad chicken’ outbreak, they’ve recovered and then some, creating marketing campaigns around sustainable food production and masterfully explaining how the company is working to reduce its carbon footprint and help in the fight against global warming.

I rarely sell a stock. And I still love Shake Shack. Are there better investment opportunities out there for my money? Absolutely. Is it possible that another fast-casual food option comes along and makes Shake Shack’s expansion plans even more complicated? Sure. But what’s wrong with taking our time and waiting five or ten more years to experience the kind of growth we’ve been hoping for? It’ll just make biting into that first Oregon ShackBurger that much sweeter.