Shake Shack shares more than double in stock market debut

By: | Published: January 31, 2015 12:02 AM

Investors seem to be craving burgers and crinkle-cut fries...

Investors seem to be craving burgers and crinkle-cut fries.

Shares of Shake Shack Inc., a burger chain that started as a New York City hot dog cart, more than doubled in their stock market debut Friday.

Shake Shack, created by restaurateur Danny Meyer’s Union Square Hospitality Group, is the latest ”fast-casual” chain to attract investors. Many Americans are ditching fast-food chains, such as McDonald’s, for restaurants that tout fresh ingredients. Shake Shack cooks its burgers to order and promotes its use of natural ingredients, including hormone- and antibiotic-free beef.

Shake Shack’s New York roots are also likely driving demand for the stock.

”There isn’t anyone on Wall Street who hasn’t tried their burgers and shakes,” says Kathleen Smith, principal at Renaissance Capital, an exchange-traded fund manager that focuses on IPOs. ”It’s a local favorite.”

Shake Shack raised $105 million, on Thursday selling 5 million shares at $21 per share.

It had initially forecast that its shares would fetch $14 to $16 per share from investors, and raised that forecast to $17 to $19 per share on Wednesday as demand grew.

Shares began trading Friday, and were up 130 percent, or $27.40, to $48.40 in the afternoon – suggesting that the company could have sold its stock for a higher price in its IPO and raised more money.

The company and the banks that priced the IPO may have been surprised by how much demand there was for Shake Shack’s shares, Smith said.

It has 63 locations in nine countries, but most of them are along the East Coast. Others are in Las Vegas, Chicago, London and Istanbul.

Shake Shack plans to use some of the money raised to open restaurants in new markets. The company said it expects to eventually have 450 locations.

The stock’s pop on Friday follows IPOs of other fast-casual restaurants in 2014 that have had big first-day gains, including Mediterranean-style restaurant chain Zoe’s Kitchen Inc., chicken chain El Pollo Loco Holdings Inc. and burger chain The Habit Restaurants Inc.

As for Shake Shack, its stock is trading under the ticker symbol ”SHAK” on the New York Stock Exchange.

It took about 14 years for Shake Shack to go from the hot dog cart in Manhattan’s Madison Square Park to Wall Street. Three years after the cart opened in 2001, the company opened a kiosk in the same park, then restaurants in New York City. It opened the first restaurant outside New York City in 2010 in Miami.

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