The market went crazy for Shake Shack (NYSE:SHAK) as a couple of weeks ago the sponsors were thinking of taking the 63-unit burger franchise for a price as low as $14 changed into $21 last week. On top of that this Friday the stock went up 119%. Based on Shake Shack’s (NYSE:SHAK) scenario it can be said that things are not too favourable for McDonald (NYSE:MCD). The company has had 5 continue bad quarters and now it is replacing its CEO which does not make things better for McDonalds (NYSE:MCD).
Although Shake Shack seems to be doing better than McDonalds (NYSE:MCD), however investors might want to think before buying into any of the two companies. Shake Shack (NYSE:SHAK) is priced much higher than what Wall Street experts had anticipated and currently there are 36.3 million outstanding shares amidst the two stocks. This indicates that the small franchise has gathered a market capitalization of about $1.7 billion in just one day of its trading.
This is a huge amount considering the fact that previously the food chain could just generate 106.7 million in sales. In 2013 the company just gathered $82.5 million in revenues. The future also looks brighter for the company as it plans on expanding its chains in Chicago as well as Austin. It is being assumed that the new chains by Shake Shack (NYSE:SHAK) will not do as well as the burger joints that open in New York do.
The burger places in New York potentially make $7 million a year and according to speculations Shake Shack’s (NYSE:SHAK) new locations in their annual sales will not be able to make even half of that amount. McDonald (NYSE:MCD) trades at 3.3 times sales, however most of its revenue is gathered in the form of franchise royalties. McDonald (NYSE:MCD) yields 19 times the earnings of the previous year as it tries to bounce back from a rather difficult and challenging year.
The company has seen 5 continuous bad years and it has just replaced it CEO which has put the fat food chain in a pickle. In order to turn things around for McDonald (NYSE:MCD) the company will have to win back the public. McDonald (NYSE:MCD) is no doubt taking the right steps towards bringing the customers back. However, some of the steps that the company took were over the top like its “signs” campaign and the promotion that the company came up with on Monday saying “Pay with Lovin”.
Although these might be risky initiatives but given the scenario that McDonald (NYSE:MCD) is in it is understandable why the company is taking these steps. McDonald (NYSE:MCD) also rewards its investors with a yield of 3.7%. The company has also consistently increased its dividend annually since it began it payout policy in the year 1976. Although Shake Shack (NYSE:SHAK) has a long many years to grow but it will take a long time to come up with a justification of its $1.7 billion market cap.
