Shake Shack (NYSE:SHAK) has turned things around in grand fashion this year. After losing more than half of its value in March 2020 during the start of the pandemic, shares are flying high once more. With just weeks remaining until 2021, Shake Shack stock sports a 50% year-to-date gain. To be fair, the better-burger chain is still coping with challenges due to COVID-19 and ensuing changes in consumer behavior. But it has a plan -- and ample sums of cash. Investors could pick far worse restaurant stocks.

Digging out of a deep hole

Restaurants have been among the businesses hit hardest by the pandemic, but Shake Shack in particular bears deep scars. Based in the Northeast and concentrated in densely-populated urban areas, Shake Shack took a steep tumble because of the lockdown and necessary social distancing to halt the spread of the novel coronavirus. 

But after an especially ugly second quarter, company-operated same-Shack sales trends (foot traffic and guest ticket size at stores open for at least two years) have started to improve sequentially. A resurgent wave of infections in November and December could put a damper on the recovery, but this chain is nonetheless making progress. With vaccines now shipping out, shareholders can see a glimmer of hope on the horizon.

Period

Q1 2020

Q2 2020

Q3 2020

October 2020

Year-over-year same-Shack sales decline

(12.8%)

(49%)

(31.7%)

(21%)

Data source: Shake Shack. Table by author. 

Things could be worse, considering

Of course, increasing sales at existing stores isn't Shake Shack's only growth lever. This company is aggressively opening new locations, and it has fired up its development pipeline again after a brief pause in the spring. In fact, thanks to new locations slinging burgers, hot dogs, and shakes, revenue was down a much more modest 17% year over year during the third quarter: not bad given the ugly same-Shack sales metric. 

Adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) was actually positive last quarter, at $8.2 million. That was much better than Shake Shack's $8.8 million adjusted EBITDA loss in Q2. And with new stores cutting ribbons again and 50 to 60 more openings planned for 2021 (35 to 40 company-owned, 15 to 20 licensed to franchisees), Shake Shack is well along in a recovery to its previous growth trajectory.

A woman eating a burger, fries, and a shake.

Image source: Getty Images.

Premium priced, but for a reason

As bad as things got, Shake Shack is actually emerging from the crisis in even better financial shape than before. It raised fresh cash by issuing new stock back in the spring. As of the end of September 2020, it had $175 million in cash and equivalents, $16.9 million in marketable investments, and no debt on its balance sheet. 

This extra liquidity will come in handy as Shake Shack navigates the world post-pandemic. It plans to invest in store formats that feature drive-thrus, walk-up windows, and expanded pick-up and delivery features. In addition to building these new locations, the company also plans to retrofit existing stores to better accommodate consumers who could be wary of in-store dining even after COVID-19 is beaten. 

Business is thus looking up again, but is the stock a buy? For the right investor, I'd say yes -- specifically, an investor who can be patient with what is surely going to be a bumpy road ahead. Shares are priced at a premium rivaling the likes of fast-casual peer Chipotle Mexican Grill (NYSE:CMG), even though Chipotle has already returned to growth and operates at an enviable profit. Suffice it to say, investors expect that Shake Shack will be able to expand at a rapid pace in the years to come. However, Shake Shack's premium valuation may (rightfully) give many investors pause before pulling the trigger on a purchase. 

SHAK PS Ratio Chart

Data by YCharts.

Personally, I'm keeping the small stake in Shake Shack that I took back in the spring, when the fate of the restaurant industry was still up in the air. I'm not buying any more at this juncture, but if investors think Shake Shack will be a much bigger chain than it is now in a decade, it's worth considering. Shake Shack certainly has the cash to pull it off.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.