(Reuters) - Shares of trendy hamburger chain Shake Shack Inc (SHAK.N) soared as much as 150 percent in their first day of trading on Friday, valuing a company with only 63 restaurants at nearly $2 billion.
The sizzling debut follows the successful listing two months ago of Habit Restaurants Inc (HABT.O), highlighting strong appetite for shares of companies serving up premium burgers. Other hot fast-casual restaurant debuts have been followed by stock swoons, including Noodles & Co (NDLS.O) and sandwich maker Potbelly Corp (PBPB.O).
Shake Shack shares were $48.31 in afternoon trade on the New York Stock Exchange, soaring above their offer price of $21 and raising questions about whether the stock was overvalued. Earlier in trading the shares hit a high of $52.50.
Based on 2013 earnings, the company that grew out of a hotdog cart in New York's Madison Square Park is trading at an eye-popping price-to-earnings ratio of about 325, with each restaurant valued at about $27 million.
"Seems like a nosebleed valuation," said Bob Goldin, an executive vice president at restaurant consultancy Technomic Inc, adding that Shake Shack would need "explosive growth for years and years" to justify its stock price.
Chief Executive Randy Garutti told Reuters the cult chain is a "very measured growth company". The chain adds 10 domestic restaurants per year. Many of those new restaurants will be in lower-profit-margin markets outside New York City, he said.
The company also has forecast low-single-digit percentage same-restaurant sales growth over the long-term.
While that kind of growth might be sufficient for a typical restaurant chain, it may not be enough to satisfy growth-hungry investors accustomed to far more robust results from industry darling Chipotle Mexican Grill (CMG.N).
Shake Shack founder Daniel Meyer's 21 percent stake was worth about $390 million based on the stock's intraday high.
Meyer, the chef-owner of popular New York restaurants Blue Smoke, Gramercy Tavern and Union Square Cafe, opened the first Shake Shack in 2004. Since then, the chain has won a rabid following for its rich milkshakes, crinkle fries and hormone- and antibiotic-free burgers.
Shake Shack raised $105 million from its initial public offering. Underwriters J.P. Morgan and Morgan Stanley had originally set an expected price range of $14-16 per share, but later raised it to $17-19 due to strong demand.
SCORCHING GROWTH
Premium chains have been outperforming in the overall burger category, driven by demand from young, affluent consumers.
Shake Shack's customers spend roughly $30 for a meal for two, considerably more than diners spend at struggling fast-food giant McDonald's Inc (MCD.N), which this week replaced its CEO after a dismal performance in 2014.
Sales at premium chains including Five Guys and Smashburger rose 9 percent in 2013, according to Technomic, while overall sales at all burger chains including McDonald's fell 1 percent.
The burger market was worth $72 billion in 2013, according to Technomic.
Shake Shack said it could eventually grow to at least 450 U.S. locations.
The IPO market has been fruitful for "fast-casual" restaurant operators hoping to replicate the scorching growth of Chipotle, which had roughly 1,700 U.S. restaurants at last count. Its shares, listed at $22 in 2006, were trading at $713 on Friday.
Mall-based chain Red Robin Gourmet Burgers is up more than 300 percent in the last five years, and Zoe's Kitchen has climbed to about $32 per share after opening last April at $25.65. Its IPO price was $15 per share.
Shake Shack had net income of $3.6 million and revenue of $83.8 million in the 39 weeks to Sept. 24.
(Additional reporting by Lisa Baertlein; Editing by Ted Kerr)
