Source: Shake Shack

Shake Shack (SHAK -0.90%) was one of the hottest IPOs on the market last year. Shares of the fast casual restaurant chain were priced at $21 per share in Jan. 2015, and they delivered truly spectacular gains right out of the gates. The stock hit record highs in the neighborhood of $97 per share by May 2015. 

However, things now look remarkably different for Shake Shack investors: the stock has fallen 60% from its previous highs, trading around $37 per share at the time of this writing. Should investors capitalize on the opportunity to take a bite of this high-growth restaurant chain?

Hunting for the next Chipotle Mexican Grill
There was a lot of optimism surrounding Shake Shack when the stock went public. This was before Chipotle Mexican Grill (CMG -0.12%) was crippled by an E. coli outbreak, and the burrito restaurant was delivering tremendous gains for investors at the time. Everybody was hunting for the next fast casual success story, and Shake Shack looked like a solid candidate to claim that title.

Both Chipotle and Shake Shack took traditional fast food menu items and raised their quality by focusing on fresh, more natural ingredients. The two companies offer only non-GMO products and meat free of hormones and antibiotics. 

In fact, Chipotle Co-CEO Monty Moran said in an interview in September of 2015 that the two companies are on the same side of industry trends, working to change the rules of the game by offering superior quality to typical fast food chains. 

When you come up with something like Shake Shack, or any better burger concept, or anyone doing a decent job making food that's respectable and decent to eat, such competition, I think, is good for us. Not good because they are going to take market share from us, as I think they don't tend to take market share. What happens instead is that people get used to a higher level of eating, and once they get used to that, they will not go back to traditional fast food ... I am just happier than hell when I see Danny Meyer's Shake Shack doing well.

Expectations for Shake Shack were sky-high by the time of the initial public offering, and excessive optimism can lead to major disappointment once expectations come down to more reasonable levels. Most of Shake Shack stores are located on the East Coast, and harsh weather conditions could hurt the company's revenue over the short-term. According to data from Bloomberg Intelligence, nearly 70% of the company's stores are in areas highly exposed to blizzards during the winter months.

The stock vs. the business
Stock prices can be quite volatile in the short-term. Investor sentiment and opinions about a particular company, its industry, and the economy in general are always changing, and this can have a considerable impact on share prices. Over the long-term, however, stock prices tend to track the business fundamentals, and Shake Shack keeps doing great in that area.

The company has topped Wall Street earnings forecasts the last four consecutive quarters, and the business is firing on all cylinders judging by the latest financial report. Total revenue during the third quarter of 2015 grew by a mouth-watering 67.4%, reaching $53.3 million. Same-store sales jumped 17.1%, so customers are showing a healthy appetite for Shack burgers, and new store openings are not cannibalizing sales at previously existing locations.

The are only 75 Shake Shack units as of the third quarter, 41 of them domestic and company-operated, five domestic and licensed units, and 29 licensed international restaurants. A relatively small base provides a lot of room for expansion, and management has recently accelerated its growth plans on the back of strong demand. Back at the time of the IPO, the company said it was targeting 10 new domestic restaurants per year -- management then raised that number to 12 during the second quarter, and the company is now targeting at least 14 company-operated units in 2016. 

To put that into context, Chipotle has over 2,010 restaurants, and it still has plans to open over 200 new locations in 2016. Shake Shack has enormous room for growth before reaching even a small fraction of that size. 

With that in mind, Shake Shack stock is not particularly cheap, as it carries a price to sales ratio around 7.6 times, more than double the valuation Chipotle commands. The main idea is that Shake Shack stock may be struggling right now due to changing investor sentiment and speculation around the short-term impact of weather conditions. However, the company is enjoy accelerating growth, and the business has a long runway of expansion opportunites. The lower the stock price goes, the tastier the opportunity for growth-hungry investors.