Forget apple pie. There’s a certain type of food that has entranced Americans for over 70 years — the burger.
In spite of slowing sales at McDonald’s Corporation (NYSE:MCD) and its peers like Burger King Worldwide Inc (NYSE:BKW) and Wendys Co (NASDAQ:WEN), the burger market is actually growing as new gourmet names expand their empires.
What was once a regional-focused market, with the likes of In-N-Out Burgers on the west coast and Five Guys Burger and Fries on the east coast, dominating their respective markets, has become a national, and even international, playing field with many different gourmet burger chains vying for dominance.
Many of these upstart chains are small and expanding rapidly.
Years ago, famed investor Peter Lynch once said that it takes a long time to expand a retail chain across a country. So, even if an investor gets in past the start-up stage, there’s likely to still be quite a bit of growth to cash in on.
That’s also true of restaurant chains. Some of the gourmet burger brands that are publicly traded are still in their infancy stages with less than 100 restaurants worldwide. Comparatively, McDonald’s has over 36,000 global restaurants.
How Does an Investor Play the Burger Game?
Many well-known gourmet burger brands are still privately owned. So, investors are out of luck.
Those privately owned burger joints include In-and-Out Burger, founded in 1948, which has a cult following in California and now has 300 restaurants in five states. Five Guys Burger and Fries is another example which was started in Washington, D.C. in 1986 and now has over 1,000 locations in 47 states and Canada.
Smashburger Master LLC is the latest entry into the burger wars. Smashburger is a relative newcomer, founded in 2007 in Denver, but now has 300 locations in 32 states and five countries. Smashburger’s CEO recently said in an interview that it has no imminent plans to go public.
While investors chomp at the bit to get a piece of those expanding companies, investors can still satisfy their burger needs with a handful of burger companies that have decided to take the plunge and go public.
The public companies have several things in common beyond offering burgers, some with “secret” sauces. They like to cook everything fresh, including their french fries, and shakes or ice cream concoctions are prominently featured on the menu.
By the way, none of their menus are exactly low-calorie, but they do feature “natural” and “fresh.’
Consumers can’t seem to get enough of gourmet burgers as they are willing to absorb recent price increases and pay premiums over the price of, say, McDonald’s.
Just who is publicly traded? And which has the best fundamentals and growth story?
These three burger companies have the ingredients investors are looking for: Zacks Ranks of #2 (Buy) or #3 (Hold), strong earnings and same-store-sales growth.
Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB)
The first Red Robin Gourmet Burgers, Inc. (NASDAQ:RRGB) restaurant began in Seattle, Washington in 1969.
While the early Red Robin served sandwiches and beer, it then offered the first burgers on the menu in 1973. One of RRGB’s signature items, the Bottomless Steak Fries, appears in 1994. By 2000, Red Robin had expanded to 150 restaurants nationwide.
RRGB went public in 2002 and continued to expand. Red Robin differs from some competitors in that it is a sit-down restaurant serving a larger menu, which includes salads, soups and alcohol. In 2011, RRGB opened its first casual restaurant called Red Robin Burger Works, which serves a more limited menu of just burgers and appeals to those in major urban centers, like downtown Chicago.
Red Robin has only just begun rolling out the Burger Works concept, which is in just a handful of cities.
- Number of Restaurants: 500+ in the United States and Canada
- Market Cap: $1.14 billion
- Forward P/E = 27.2
- Expected 2015 Earnings Growth = 14.8%
- Comparable store sales growth expected to be between 2% and 3% in 2015
- Zacks Rank #3 (Hold)
Habit Restaurants Inc (NASDAQ:HABT)
Habit Restaurants Inc (NASDAQ:HABT) was founded in Santa Barbara, California in 1969 and specializes in the charburger. HABT has grown to over 100 restaurants in 10 markets in California, Arizona, Utah and New Jersey. However, Habit Restaurants is still heavily California-centric.
Habit Restaurants is tiny compared to Red Robin. HABT is in the first stages of its national expansion.
The Habit Restaurants brand has been hot. On April 7, HABT announced that preliminary first-quarter comparable store sales results had increased between 12.4% and 12.6%. For the full year 2014, comparable store sales rose 10.7% due to a 3.7% increase in average transactions and a 6.8% increase in transactions.
- Number of Restaurants: 100 in 4 states
- Market Cap: $280 million
- Forward P/E = 182
- Expected 2015 Earnings Growth = 9.4%
- For the first quarter, comparable store sales growth expected between 12.4% and 12.6%.
- Zacks Rank #2 (Buy)
Shake Shack Inc (NYSE:SHAK)
Shake Shack Inc (NYSE:SHAK) started as a hot dog cart in 2001 in New York’s Madison Square Park. By 2004, it had opened its first restaurant and has been growing in New York City ever since.
SHAK is known for using 100% all-natural Angus beef that is never fed with hormones or antibiotics. One of Shake Shack’s signature dishes is the cheese crinkle fries. Shake Shack also serves delicious shakes and frozen custard.
SHAK has been expanding rapidly out of its New York home base and now boasts 63 Shake Shack — 36 in the U.S. and 27 internationally. The international Shake Shack locations are licensed, as are five of the domestic Shake Shacks.
On Mar. 11, SHAK announced that it aimed to open 10 domestic Shake Shack restaurants a year with 450 domestic locations as its ultimate goal.
Investors love the growth potential and have bid SHAK stock up, but Shake Shack is now the most expensive among the gourmet burger stocks and one of the most expensive restaurant stocks.
- Number of Restaurants: 63 in both the United States and internationally
- Market Cap: $730.4 million
- Forward P/E = 1086
- Expected 2015 Earnings Growth = -64% (Shake Shack made $0.16 in 2014 and the Zacks Consensus for 2015 is $0.06)
- For 2015, Shake Shack guided same Shack sales growth in the low single digits
- Zacks Rank #3 (Hold)
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