A Shake Shack burger.
WASHINGTON (MarketWatch) — Shake Shack had one delicious first day of trading on the New York Stock Exchange: By very, very rough calculations, the company is now worth $ 150 for every hamburger it sold last year.
Here’s the math: The company generated nearly $ 79 million in revenue from “Shack sales,” to adopt company terminology, during the last fiscal year. (Licensing revenue is being ignored in this exercise.)
We’re going to assume — we don’t know — that three-quarters of the revenue comes from hamburger sales, which doesn’t seem unreasonable. The company did state in its prospectus that 3% of revenue comes from alcohol. That leaves hot dogs, fries and nonalcoholic drinks as other revenue items, but the company does focus on its hamburgers.
That gets us to $ 59.25 million in burger revenues. Now, how many burgers is that? A website featuring fast-food menus puts a single ShackBurger at $ 5.19 each. There are variously sized and priced burgers ranging from $ 4.19 to $ 9.49, so, again, this is a guess.
Dividing $ 59.25 million by $ 5.19 leaves us with about 11 million burgers sold.
The stock’s SHAK, +118.57% surge to the high $ 46 area in its first day of trades gives it a market cap of about $ 1.66 billion.
That, in turn, values the company at just over $ 150 per burger sold.
By a more traditional metric, the company is valued at 279 times last year’s operating profit.
That doesn’t mean the company is necessarily overvalued. It would be overvalued if the company didn’t expect to grow much further, but it says it’s in the early stages of its growth.
It does, however, imply that management needs to sell a lot more burgers to justify this market valuation.