Initially priced at $21.00 per share, SHAK stock ended its first day of trading up over 100% at $45.90, moved to just north of $52 per share, and even after an inevitable pull back is still ahead nearly 95%.
The very trends that are pumping up SHAK's shares have left those of McDonald's – the most iconic name in hamburgers and perhaps in the entire global restaurant business – becalmed. But a third player might be the best bet of them all.
Barriers to Entry Looking Vulnerable
Competition, changing consumer tastes and habits, and some dismal financial metrics have investors wondering what's next for MCD. More importantly, they signal how investors should play the Golden Arches in the future.
And while it is relatively easy to identify why MCD is losing some momentum in the burger wars, it is much harder to know whether it will be able to reverse course. McDonald's increasingly looks, trades, and tastes like yesterday's news. Yes, it is up slightly on a year-to-date basis, and on a five-year basis it beat the giddy S&P 500 until the index rocketed ahead in mid-2013. Nonetheless, given its recent earnings report admission that its sales fell in 2014 for the first time in three years, Ronald's smile is looking a little forced.
In fact, the 2014 Consumer Reports survey of 21 burger brands ranked Mickey D's dead last. When customers are telling a restaurant that the food stinks, it has a serious problem.
The burger chain's menu is also a mess with over 100 items which takes the "fast" out of "fast food" by making it difficult for customers to order quickly. By trying to compete with everybody rather than with just other burger chains, McDonald's is spreading itself too thin and diluting its brand.
Furthermore, in a culture where its food is already avoided by many people with health concerns – are you really going to a burger joint if you want a salad – McDonald's would be better served being true to its identity and making the best burgers in the world.
Will a New CEO Reverse Its Course?
With a still enormous market cap of $92 billion and a significantly above-market multiple of 19.5x earnings, MCD stock has been treading water for the past two years.
One reason that it has held its ground is the announcement that long-standing CEO Don Thompson would be replaced on March 1 by industry star Steve Easterbrook.
It's going to take more than a new CEO to boost performance, however.
While 2013 and 2014 sales were $28.1 billion and $27.4 billion, respectively, Goldman Sachs expects sales to drop to about $25 billion in 2015 and 2016 due to the stronger dollar and competitive pressures.
Earnings per share, which were $5.59 in 2013, dropped to $4.85 in 2014 and are expected by Goldman Sachs to remain at about that level in 2015 before recovering to $5.23 in 2016.
One Competitor Stands Out
Occasionally a new concept arrives on the scene that captures consumers' imaginations and makes a splash: and that's SHAK. If it successfully executes its aggressive growth model, MCD could find it harder and harder to lure in new customers.
About the Author
Prominent money manager. Has built top-ranked credit and hedge funds, managed billions for institutional and high-net-worth clients. 29-year career.