Shake Shack Inc (SHAK)

Time to add? They are only in 26 states so far, so there is a long playing field for SHAK-N. It trades at a high multiple, so if they disappoint it can become very painful quickly. Be cautious. He prefers to own the established names like SBUX-Q or CMG-N.

The stock looks great now, and has had a great run recently, though $30 off its all-time high. No reason to sell it.

*Short* The whole reason a restaurant business in the US can do well, is that there is a huge market, and hopefully it can go global. However, how many $20 hamburgers do people need? It is a premium burger. The stock is trading at a ridiculously high multiple, over 70X. That multiple just can’t be supported on modest growth. The disparity between eating out and eating at home has gotten to the point where it is hard to see justification of eating a high end hamburger at a quick service restaurant.

*Short* This is a specialty burger restaurant. Danny Myers is the entrepreneur behind it. He has some wonderful restaurants, in New York in particular, but this is his high end burger joint, and it is trading at a ridiculous multiple. The price of eating out has gone up and up, and consumers’ incomes are not going up at the same level.

A good example of an exciting company that IPOs and ends up trading at a premium because everyone likes it. We have seen this with Facebook (FB-Q). It was exciting and came out at a premium, and for the first while the shares were down. This stock is suffering from a similar situation. He likes their business, but would not be a buyer as he feels the evaluation is too rich. PE is pricing in significant growth in the next 6-18 months, so it is pricing in perfection. If there is any shortfall, you are going to see the stock price punished. He would prefer McDonald’s (MCD-N).

A quick serve restaurant. Trading at a very high multiple. Because she is a value oriented investor, the value is way too extreme. If you own, consider lightening up.