Shake Shack

Shake Shack Inc earns a 3-star quantitative star rating, illustrating our stance that this share class is a balanced choice, but prudent investors should consider looking elsewhere. The stock currently trades at a 36% premium over our quantitative fair value estimate of $46.05 per share; however, this estimate should be taken with a pinch of salt due to its very high uncertainty rating.

The firm's lack of profitability decreases our estimated valuation. Companies with low profitability are often less resilient in recessions and are likely to generate weaker future cash flows for shareholders. For example, the firm's earnings yield of 2.8% falls in the bottom 45% compared with peers globally. The earnings generated by the company relative to its share price is concerning, which contributes to our view that shares are expensive.

The company's valuation metrics are an additional cause for concern. A company's valuation metrics provide insights into the market's expectations for its future growth and profitability. The firm's enterprise value to EBITDA ratio of 15.0, a core component of valuation, falls in the top 45% compared with peers globally. This suggests that the value of its enterprise value, or the value of its shares and debt, is a high multiple of the generated EBITDA. This characteristic further promotes our unfavorable price/fair value ratio.

With its quantitative economic moat rating of none, this business is unlikely to consistently outearn its cost of capital without structural protection from competition. Additionally, the firm's moderate financial health score suggests it is acceptably positioned against adverse economic circumstances.