1 Number That Has to Change Before I Buy Shake Shack Shares

Core Insights - Shake Shack has achieved its 19th consecutive quarter of sales growth in Q3, demonstrating resilience in a challenging economic environment where inflation reached 9.2% in mid-2022, while larger competitors like McDonald's experienced a sales decline of 3% [1] - The company reported a restaurant-level profit margin of 22.8%, an increase of 180 basis points, significantly higher than the typical restaurant-level profit margin of 3% to 6% [2] - Shake Shack's same-store sales grew by 4.9% year over year, contrasting with a nationwide decline of 1.1% in fast-food traffic, highlighting its strong market position [5] Company Performance - Shake Shack plans to expand its store count to 1,500 locations, more than tripling its current number, with 30 new stores opened as of Q3 2025 and plans for 55 to 60 new stores in 2026 [6][7] - The company has consistently raised prices over the past 19 quarters, achieving a same-store sales increase of 4.3% in 2024 despite being labeled the most overpriced fast-food chain [8][10] Industry Context - The broader restaurant industry is facing challenges, as evidenced by the performance of the AdvisorShares Restaurant ETF, which gained only 2% over the last 12 months compared to the S&P 500's 18.5% return [3] - Competitors like Chipotle Mexican Grill and Wendy's are struggling, with Chipotle experiencing its first same-store sales decline in 20 years and Wendy's shares down 43% amid a 4.7% slump in same-store sales [4] Valuation Concerns - Shake Shack's price-to-earnings ratio stands at 98, significantly higher than the average S&P 500 company and more than double that of Nvidia, which has a P/E ratio of 45 and is growing earnings by 65% year over year [12] - The overvaluation of Shake Shack raises concerns for potential investors, as even a hypothetical 100% earnings growth would still leave it more expensive than leading stocks in the AI sector [13]