Shares of burger chain Shake Shack (SHAK 3.45%) skyrocketed on Thursday after the company reported financial results for the fourth quarter of 2023. While other restaurant chains struggle with lackluster restaurant traffic, Shake Shack is encouragingly gaining ground. And this is a big reason that Shake Shack stock was up a whopping 23% as of noon ET and hitting 52-week highs.
People are going to Shake Shack
Shake Shack is a burger chain with a little more than 500 locations worldwide. And whereas many other restaurant chains have seen fewer diners as menu prices have increased, Shake Shack saw 1.4% year-over-year growth with restaurant traffic in Q4, contributing to a 2.8% increase in same-restaurant sales.
With higher sales per location, Shake Shack's restaurant-level operating margin (a key profit metric that excludes corporate expenses) was 20% in 2023 -- a very good number and its highest since 2019.
With higher traffic and higher restaurant-level profitability, Shake Shack managed to buck an industry trend to close out 2023. This pleasant surprise contributed to the stock's big gain today.
Are financial results this good?
For its fiscal 2024, Shake Shack expects top-line growth of 11% to 15% thanks to 80 new restaurant openings, 40 of which will be franchised locations. And it also expects to build upon its results with a restaurant-level operating margin of 20% to 21%.
That's good. But an ever-increasing share count continues to dilute financial results for Shake Shack's shareholders. The chart below shows that there's a big disparity between revenue growth and revenue growth per share over the last five years.
SHAK Revenue (TTM) data by YCharts
Given this increase to Shake Shack's share count, profits for shareholders are meager even though the numbers look good at the restaurant level. And I'm not sure the company's recent financial results, although positive, warranted this strong of an enthusiastic reaction from the market. Therefore, I believe this is one expensive stock today and it may be a good time to take some profits off of the table as shares hit 52-week highs.
