We recently published a list of 11 Best Fast Food Stocks To Invest In Right Now. In this article, we are going to take a look at where Shake Shack Inc. (NYSE:SHAK) stands against other best fast food stocks.
Fast food is integral to American culture and remains popular among adults and children. According to a report by the CDC, one-third of Americans consume fast food every day, while 83% of the country’s families dine out at a fast food restaurant at least once a week. Around 45% of the population aged between 20-39 consume fast food every day, while the indulgence rate of those between 40-59 years of age is slightly lower at 37.7%. On the other hand, 34% of children regularly eat fast food daily.
READ ALSO: 7 Cheap Food Stocks to Buy According to Analysts.
However, an increasing number of Americans are beginning to pull down on their consumption and eating less fast food per week due to high prices. A survey by Lending Tree in May 2024 highlighted that about 78% of the citizens consider fast food a ‘luxury’ after rampant inflation in the country has forced Americans to reassess their spending habits. Surge pricing in restaurants has also added to their worries, with about 72% confessing that they would prefer having fast food during discount hours.
Over the past year, menu prices have risen considerably in the US across the wider restaurant industry, driven by increased commodity and supply chain costs. This has boosted consumer desire in the country to eat at home. Carnegie Investment Counsel’s portfolio manager, Razmig Pounardjian, stated the following to Reuters in May:
“The lack of value offers has opened up consumers to shop for different options whether it be other (chains) or the grocery stores.”
Despite challenges, the American restaurant industry remains resilient, primarily because it adapts well to changing consumer habits. The National Restaurant Association has forecast sales to top the $1 trillion mark in 2024 for the first time. It also expects the industry to create 200,000 new jobs, citing what is generally a strong demand from Americans to eat at restaurants.
A restaurant ETF issued by AdvisorShares, which invests exclusively in the restaurant and food industry has gained 18.32% YTD, outperforming the broader market by over six percentage points, as of the close of October 31. The Fed rate cuts will likely help restaurant stocks as they would to the broader market. The low cost of borrowing will boost consumer spending and ease the burden on restaurant owners, allowing them to go ahead with their expansion plans.
In September this year, the Federal Reserve announced a 50-basis point rate cut – the first since March 2020 – to lower the range of interest rates from 4.75% to 5%. Details emerging from the minutes of the September meeting disclosed a ‘substantial majority’ of central bankers backing the cut, which has raised optimism among investors for further cuts ahead in the November meeting.
Another encouraging recent trend has been the downturn in the country’s inflation, which dropped to 2.4% in September and is inching toward the Federal Reserve’s goal of a two percent annual rate.
A cook in a busy kitchen preparing a delicious cooking of burgers and fries.
Our Methodology
We used Finviz’s restaurant industry screener to sample stocks for this article and then identified the companies that dealt with fast food. Among them, we picked the top 11 companies with the highest number of hedge funds having stakes in them. We ranked them in ascending order of hedge fund holders in each company. Data on hedge funds was sourced from Insider Monkey’s database of 912 hedge funds for the second quarter of 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Shake Shack Inc. (NYSE:SHAK)
Number of Hedge Fund Holders: 31
Shake Shack Inc. (NYSE:SHAK) is a popular American fast-food chain that started as a hot dog cart at Madison Square Garden in the early 2000s. Over the years it has expanded to over 550 locations across the globe and is known for its beef burgers, crispy chicken, milkshakes, and more. It is one of the best fast food stocks to invest in right now.
The stock has surged by over 9% since the announcement of financial results for Q3 on October 30, as Shake Shack Inc. (NYSE:SHAK) beat earnings estimates. Total revenue for the quarter climbed 14.7% from last year to reach $316.9 million, while system-wide sales were posted at $495.1 million, up 12.8% year-over-year. Same-Shack sales growth was recorded at 4.4%, making this the 15th successive quarter of positive growth.
CEO Rob Lynch credited the success in Q3 to the company’s ‘continuous culinary innovation’. Some examples of this include Shake Shack Inc. (NYSE:SHAK) launching its summer barbecue menu for the Memorial Day weekend and then later, in September, bringing back the Black Truffle Burger and Chicken Sundays, both of which are extremely popular among consumers. These differentiated culinary experiences help the fast food chain stand out in today’s fierce value wars and also aid in spreading brand awareness.
Shake Shack Inc. (NYSE:SHAK) has a significant number of sales-driving initiatives and campaigns that it plans on leveraging ahead. There are three that stand out, starting with its strategic production innovation calendar at first. The second is the launch of its loyalty platform, and lastly the operational enhancement plans in the pipeline to enhance customer experience, improve throughput, and lower service times.
Lynch spoke to CNBC after the earnings beat and vowed to expand Shake Shack Inc. (NYSE:SHAK) both domestically and internationally, and noted that there were still plenty of markets the restaurant chain could tap into. The company opened 17 new restaurants in the third quarter, of which eight were domestic and company-owned. It is on track for 75 new openings for the full year and plans for 80-85 new units in 2025.
Looking ahead, Shake Shack Inc. (NYSE:SHAK) anticipates Q4 revenue in the range of $322.6 million to $327 million, representing a projected uptick of 12.7% to 14.2% from last year. Full-year sales are expected at $1.25 billion, up 15% year-over-year.
Overall, SHAK ranks 4th among the 11 best fast food stocks to invest in right now. While we acknowledge the potential of fast food companies, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SHAK but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.