GOLDMAN: Shake Shack is a great company with an expensive stock

Shake shack burger friesWikimedia CommonsShake Shack burger and fries

Shake Shack shares opened for trade on January 30.

On Tuesday, Wall Street firms started rolling out their ratings on the burger chain, and Goldman Sachs started the company with a Neutral rating and a $US36 price target.

“We are initiating coverage of Shake Shack Inc. (SHAK) with a Neutral rating and see 13% downside to our $US36, 12-month price target (vs. average downside of 0.3% for our coverage universe),” Goldman writes. “Millennial relevancy, growing awareness outside of existing markets, and strong unit economics are all supportive of a significant runway for growth (only at 7% of its estimated US potential).”

Here are Goldman’s main drivers of growth for the company:

  • Shake Shack is only at 7% of its estimated 450-store US capacity.
  • Millennials love Shake Shack.
  • The company’s pricing is strong against its peers.
  • Growing Google searches in untapped markets is a positive indicator for growth potential.
  • New stores offer a cash return of 32%, comparing favourably to peers.
  • The brand is still in early stages of growth.

So, in short, Goldman thinks Shake Shack is a great company, but an expensive stock.

On Tuesday morning in pre-market trade, Shake Shack shares were little changed at $US41.75.

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