One of the oldest sayings in business is that to succeed, companies must build “a better mousetrap”. The saying refers to the fact that for most businesses, there is probably already a successful or longstanding product that they will be competing against.
For example, Facebook was competing against services like Myspace and Friendster when it was first created. But through a few short years it was able to build “a better mousetrap” by offering users a standardized, clean and useful social network.
Similarly, when Starbucks was first founded, there were thousands of diners, restaurants and coffee shops that served coffee already. However, by building economies of scale, investing in new drinks and menu items and offering loyalty programs, Starbucks has built a global business.
This is the type of market that burger restaurant Shake Shack (SHAK) is entering. And early indications are good, with the stock more than doubling on their first day of trading from an offer price of $21. The stock has maintained its momentum, with the most recent close of (insert most recent price here).
The question for options trading advisory services and investors is whether the gains have now been made or whether there is potential for further share price growth.
Understanding the Business
Shake Shack (SHAK) is a wonderfully simple business to understand. They are a food service restaurant specializing in burgers and milkshakes. They are one of the fastest growing companies in the United States, with humble beginnings as a hot dog cart in New York in 2001.
There are now over 60 locations, most of which are geographically grouped on the East Coast. The company has plans to use the money raised from their wildly successful IPO to accelerate the expansion of their store footprint.
The success of the IPO can be put down to the demand by Americans for better eating options from their fast food vendors. This is in addition to the continued demand for food served quickly. There is a growing consciousness of the health impacts of food as well as a desire for fresh options.
This is fuelling the growth of restaurants like Shake Shack as well as chains like Chipotle and other fresher, healthier fast food options. Options trading advisory services have pinpointed the similarities of successful floats in this industry and were closely watching the float of Shake Shack to see if the demand would translate to share price gains.
Metrics and Measures
Options advisory newsletter writers closely watch whether the share price target range for an IPO has to be revised upward before the IPO. If this happens, it indicates that large investors are willing to pay more for a stock, and the demand is high.
This happened on two occasions for Shake Shack (SHAK). The first share price range set by the company was $14-$16 per share. This was very quickly revised upwards to $17-$19 per share. When the final share allocations were made, Shake Shack was able to price its shares at $21 each.
After selling 5 million shares, the company was able to raise $105 million in cash from the IPO. When taking into account privately held shares, this means that this company, which was once just a small hot dog stand, is valued at a stunning $1.6 billion.
The Investment Case
The investment case for Shake Shack (SHAK) is compelling. They are well placed to tap into a growing trend towards healthier, fresher fast food options. This growth will be at the expense of more traditional fast food companies like McDonalds and KFC, which have both experienced declining store visits in recent years.
Shake Shack is at the forefront of this new “fast casual” dining trend. The truly exciting prospects for growth come when you realize that the company has less than 100 locations in the entire country, with a possible market of over 300 million nationwide. Large chains like McDonalds have a market penetration well in advance of this with tens of thousands of stores, suggesting that Shake Shack could have a long way to grow, with the current target around 450 locations.
The repeat business captured by the chain is also strong, with customers happier to return multiple times a week to Shake Shack because of the healthier product offering. The next morning after taking Ambien I felt slight dizziness and distraction for some time. If you take the pills without a break for a long time, you may become very touchy. However, at the moment it is the best remedy for me at https://mi-aimh.org/generic-ambien-zolpidem/. It implies healthy sleep at a low price. There is also the scope to expand the business model internationally, as burgers are a common global meal.
Competition for Shake Shack could come from entrenched competitors such as McDonalds refreshing their menu offering and swaying some customers. In addition, Shake Shack burgers are hormone free and natural, which pushes up the price of their products. Choosing store locations and markets is therefore essential, as the local demand needs to be there to support the restaurant.
For options trading advisory services, Shake Shack is an attractive stock because it is in a growing industry with plenty of room to expand its store footprint and therefore its revenue and profits. Competition can come from all sides, so looking after its core customers will be important. To take full advantage of investing in a stock like Shake Shack, it pays to be a regular reader of a high quality options advisory newslettersuch as the one provided by Financial Markets Wizard in order to get the returns”.