Shake Shack is already fulfilling its plans to triple its number of stores.
Margins at the restaurant level are growing and same-store sales growth is a highlight of the industry.
However, the stock has fallen dramatically and one metric tips the odds against anyone buying shares.
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Fast casual restaurant chain Smoothie Shack(NYSE: SHAK) had a big year in 2025. The company announced a massive expansion plan that would more than triple its store count to 1,500 company-owned and licensed locations. The former hot dog stand opened 30 new stores as of its third-quarter 2025 earnings report, with plans to increase that number to 55 or 60 new stores in 2026.
Perhaps most impressive, it achieved same-store sales growth of 4.9% year over year, at a time when fast-food traffic was down 1.1% nationwide, according to data company Revenue Management Solutions. Achieving mid-single-digit comparable sales growth in 2025 seems like a big accomplishment to me, considering how fast-food executives bemoan challenging macroeconomic conditions and pressured consumers on seemingly every earnings call.
For context, Chipotle Mexican Grill just saw its first drop in same-store sales in 20 years, while Wendy’s Shares are down 43% in a year in which the company announced a 4.7% drop in comparable sales and plans to close hundreds of stores in the United States. Arby’s closed dozens of stores across the United States in 2025, while McDonald’s CEO Christopher Kempczinski announced a 10% drop in visits from low-income customers in the third quarter amid a “challenging” pricing environment.
You can see the pain of the sector in the performance of AdvisorShares Restaurant ETF(NYSEMKT: EATZ)an exchange-traded fund that allocates at least 80% of net assets to companies primarily engaged in the restaurant business. During the last 12 months, as S&P 500 returned 18.5%, the fund earned 2%.
But in all but one respect, Shake Shack has been a rare bright spot in the industry. In addition to its growing same-store sales and strong store openings, it also grew its restaurant-level earnings by 180 basis points, bringing its restaurant-level profitability to 22.8% as of the third quarter. For context, the average profit margin at the restaurant level typically ranges between 3% and 6%.
Most surprising to me is that it posted its 19th consecutive quarter of sales growth in the third quarter. That means that even as inflation hit 9.2% in mid-2022, Shake Shack was able to increase sales that quarter, while much larger competitors like McDonald’s saw a 3% decline.
Over the past 19 quarters, Shake Shack has repeatedly raised prices, but customers keep coming back. In 2024, same-store sales rose 4.3% despite price increases, and at the end of that year it was named the most expensive fast-food chain in a Preply survey. However, it regularly gets its way by passing on higher costs to consumers, even as its restaurant-level margins continue to rise.
Image source: Getty Images.
That’s called pricing power, and Warren Buffett explained it well when he spoke to students at the University of Florida about one of his all-time favorite investments, his $25 million purchase of See’s Candies. At the time of the purchase, See’s was selling candy for $1.97 per pound. However, it was able to increase prices each year for a decade by 11.4% annually, on average, while selling more volume each year. Pricing power was, Buffett claimed, one of the reasons he knew this eventual 8,000% winner was a big deal.
Like See’s Candies, Shake Shack has proven that it can raise prices with impunity. That indicates a special business; however, the stock plummeted in 2025. And unlike See’s Candies, I don’t think buying Shake Shack today will result in an 8,000% gain, or necessarily any gain at all. Here’s why.
Shake Shack’s price-earnings ratio of 98 is more than triple that of the average company in the S&P 500. By the numbers, it’s more than twice as expensive as NVIDIAthe artificial intelligence (AI) darling with a P/E ratio of 45, which is at least growing earnings by 65% year over year.
To put this in perspective, Shake Shack could post 100% earnings growth overnight and still be more expensive than the hottest stocks in the $15.7 trillion AI revolution. When a stock is so overvalued, the odds are tilted against investors, because a company that is “priced for perfection” often can do nothing but disappoint.
Shake Shack is an intriguing and impressive enough company to buy shares of at a modest premium, but this exorbitant valuation is too much. Investors would do well to wait for a more favorable entry point before purchasing shares.
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William Dahl has no position in any of the stocks mentioned. The Motley Fool has positions and recommends Chipotle Mexican Grill and Nvidia. The Motley Fool recommends the following options: Short March 2026 calls for $42.50 on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
1 Number You Should Change Before Buying Shake Shack Stock was originally published by The Motley Fool
