Is Shake Shack’s Success Another Nail In McDonalds Coffin?

Shake Shack’s recent IPO was unprecedented. In fact, it “outperformed the industry.” To put it in numbers, they had a 118% increase on the first day! Their stock price began at $21 and by the end of the day after going up and down, it ended the day at a whopping $45.76.

This made the company worth 1.6 billion dollars when they only brought in $83.8 million in the first three quarters of 2014. Although many other companies have had better first days, Shake Shack’s performance was incredible mostly because they are a relatively “small” company. By small I mean that Shake Shack only has 63 restaurants, which is not that many compared to larger fast food chains like McDonald’s or Chipotle.

Perhaps what set it apart is that Shake Shack has an incredibly loyal following. Many are comparing it to Chipotle (although it’s not really a fair comparison) since they serve food that is perhaps higher quality than most fast food chains but not yet high end enough to be considered a traditional sit down restaurant. Basically, they are somewhere in the middle, a trend that’s happening with many different new fast food chains across the country.

As Rich Munarriz of The Motley Fool reported to USA Today, Shake Shack stock is now providing quite an interesting comparison to McDonald’s stock.McDonald’s has suffered in the last few years. They have had several negative quarters in a row. As our culture trends towards eating healthily and embracing more of a natural approach to food, McDonald’s has come under a lot of fire in recent months. There have been viral posts about why their French fries never expire and essentially, they are pulling out all of the marketing stops to try to recover their image.

Shake Shack on the other hand is committed to serving meat that is “vegetarian fed with no hormones or antibiotics.” This is appealing to a wide range of customers especially to a mom like me who wants her children to eat quality food. Now, I’m not saying the burger is healthy by any means but I am saying they are committed to high quality ingredients. This is what has created such a loyal following. People would rather eat a burger that tastes fresher, even if it costs a little bit more. They seem to be weary of the flat, McDonald’s burger.

Still, Munarriz says you should you buy McDonald’s stock over Shake Shack. Why? Well, Munarriz argues that it will take quite a bit of time for Shake Shack to invest those IPO dollars and expand to get to the point where investors can start to see that money back in the form of dividends. On the other hand, McDonalds “has increased its dividend every year since initiating a payout policy in 1976.” Essentially, both are a risk, Shake Shack because they are new and McDonald’s because they need a turnaround. As for which one I think is better? Well, I’ve never had a Shake Shack burger but now that I live just outside of New York City, I can promise you that’s going to change!