Shake Shack (NYSE:SHAK) stock is currently trading down about 48% from 52-week highs reached in 2019, and bargain hunters are considering whether to take a bite of what was a growth stock. But, surprisingly, purchasing Shake Shack stock around $55 per share isn't all that rare an opportunity. In fact, at some point in every year since the company went public in early 2015, you've been able to buy shares of the restaurant chain at this price or lower.

Thus far, the stock hasn't been all that great as a long-term investment. Despite growing revenue 400% since its IPO, it seems there's always something holding Shake Shack back. In 2020, the company is obviously hindered by COVID-19. During the second quarter, total revenue fell 40% year over year to $91.8 million, resulting in a disappointing $18 million loss. 

Investing in chronic underperformers is often a losing strategy. But current coronavirus challenges are motivating the company to tweak operations. Therefore, now is a timely moment to revisit Shake Shack as a potential stock investment.

A man holds a brown bag with food while wearing a face mask and gloves.

Image source: Getty Images.

Urban planning hurts Shake Shack in a pandemic

Since its inception, Shake Shack's strategy was to establish locations in heavy-traffic urban areas, near sprawling outdoor spaces that allow for high sales volume. It wasn't a bad plan: The company has some of the industry's highest sales per location averages (known as average unit volume, or AUV). But when dine-in traffic is restricted, this model ends up being a liability.

Shake Shack's second-quarter sales show this to be true. Urban restaurant locations accounted for 60% of sales before the coronavirus. In Q2, comparable-store sales (management calls it "same-Shack sales") were down 57% year over year at urban locations, and were still down by 50% in July. Attempting to limit the spread of COVID-19, these areas are among the most restricted in the country. In fact, Shake Shack's Grand Central location in New York City is one of the few that is still closed.

A Shake Shack employee holds up a burger.

A ShackBurger. Image source: Shake Shack.

Shake Shack adapts to a post-pandemic world

With this unique sales drop, Shake Shack's management is realizing it needs to facilitate more carryout/delivery sales. It's focusing on changes to grow digital, pickup options, and even drive-thru. The idea is for diners to order ahead, then walk up to designated pickup windows, pull into curbside pickup parking spaces, or drive through new pickup lanes. And, of course, you could still eat at restaurant locations offering expanded outdoor seating.

Ordering ahead makes operations more efficient. Much time is lost simply paying for a meal, but an app could handle this task beforehand. Also, with multiple pickup areas, the lines are shorter and allow for more volume.

One might think this cheapens the Shake Shack experience by taking a premium brand and making it more like its fast-food rivals. There may be some truth to that. But from a consumer perspective, these post-pandemic moves increase convenience, arguably one of the main reasons to choose a Shake Shack peer in the first place. From an operational perspective, they can increase sales when dining rooms are closed.

Shake Shack equipped itself with additional cash through loans and lines of credit earlier this year. This was partly the result of seeing its cash burn during the worst of the coronavirus shutdown as well as some uncertainty about how long the situation would last. But now Shake Shack finds itself more capitalized than at any point in its history. It has $191 million in cash and marketable securities, and only long-term lease obligations. 

With this financial security, Shake Shack can continue pursuing company-owned unit growth with an eye toward higher-volume locations. It expects to open six to 11 new domestic locations in the second half of 2020, with more in 2021, including the first location featuring a drive-thru, though management isn't presenting a target number for how many additional drive-thru locations are coming.

A Shake Shack storefront is seen under a blue sky.

Image source: Shake Shack.

Don't expect a drastic change

Absorbing these details, it appears Shake Shack is slowly pivoting toward the future model with new openings. And not all existing locations will be remodeled with these volume-enhancing features. In theory, the plan will make the company more efficient and profitable. But the change will only be noticed over the course of years, not months.

But profitability is a more urgent issue for Shake Shack. The company struggled with it prior to the coronavirus, and this is what has held the stock back to date. Consider that in 2019, it had operating income of $25.7 million -- just 4.5% of sales. This was despite already having high AUV, something that typically boosts profitability.

Regarding the company's performance of late, Shake Shack gets a free pass for the exogenous circumstances of COVID-19. And it's fair to be excited with development plans and its cash pile. But the main issue for the company remains profitability, and this likely won't show drastic improvement in the coming quarters. Until it does, expect the stock to largely trade sideways as it has during stretches in the past. 

While investors could do worse than this company, they can likely find better value and growth opportunities than Shake Shack today.