What started out as a hot-dog cart in 2001 has emerged as Shake Shack, the 63-store chain with a valuation of $1.63 billion after its first day of public trading.
New York restaurateur Danny Meyer, who conceived the cart to help restore a then-downtrodden Madison Square Park, saw his wealth increase by $342 million Friday as stock soared 118.6 percent above its initial public offering price of $21.00 per share to end the day at $45.90.
Meyer owns 7.4 million of those shares for a 21 percent stake in the hot-dog cart he turned into a humble hamburger kiosk in 2004.
An even bigger winner from the IPO was Leonard Green & Partners — the private-equity firm took a controlling interest in Meyer’s Union Square Hospitality Group in 2012.
The splitting of Shake Shack from privately held USHP, which remains home to such upscale eateries as Gramercy Tavern, The Modern and Maialino, left Green with a 26.0 percent Shack stake — valued at $423 million after the IPO — in the new public company.
The share’s upward trajectory Friday didn’t completely surprise analysts, who noted the halo over Shake Shack’s so-called “fast-casual” eating category has burned brightly since Chipotle Mexican Grill conducted its IPO in 2006.
The dearth of publicly traded restaurants added to the IPO excitement, as did Meyer’s contacts in the media and top-tier ranking in the restaurant firmament.
That most Shake Shacks are in areas frequented by financial types — including Dubai, Kuwait and London, as well as lower Manhattan — created even more sizzle with just the right segment.
The chain is undeniably popular in Manhattan, where the average store rings up $7.4 million in sales annually.
Yet, even its domestic non-Manhattan Shacks, with average sales of $3.8 million, throw off enough business to stir the envy of the food industry.
That said, however, is a self-styled chain of “roadside” burger stands that offers classic American fare of upscale burgers, hot dogs, crinkle-cut fries, shakes and custard really worth $26 million an outlet?
Never mind that Meyer plans to expand the chain by 10 outlets a year; John A. Gordon of restaurant advisory Pacific Management Consulting Group dismissed its implied stock valuation as “unsustainable over a long period.”
This is especially the case, he said, on comparing metrics commonly used for restaurant companies. Gordon estimated Shake Shack’s EBITDA to be $18 million last year and its enterprise value at $1.7 billion as of Friday.
That suggests the chain began life as a public company with a 94.4 Ebitda multiple — compared with a 10.7 multiple for McDonald’s.
Granted, Shake Shack is no McDonald’s — but the multiple will move lower as the quest for finding what Gordon called “premier sites” and additional customers escalates each year.
At the end of “a very exciting day,” CEO Randy Garutti told The Post, “We gave options to every manager in our company. “They could also buy stock at the IPO price.”